To The Moon

In 2024, $Taiwan Semiconductor Manufacturing(TSM)$ is back on top! Its stock price surged 40.6%, reaching an all-time high!

Behind this celebration is TSMC's sweet ride on the AI wave. After all, both $NVIDIA Corp(NVDA)$ 's H100 GPU and $Advanced Micro Devices(AMD)$ 's MI 300 GPU are produced by TSMC. Driven by AI demand, TSMC's sales rebounded in the first quarter.

According to monthly sales data released on April 10th, TSMC's sales for the first quarter hit NT$592.6 billion, about $18.5 billion, a year-on-year increase of 10.6%. This reversed the trend of four consecutive quarters of decline.

Next Thursday (April 18th), TSMC will officially release its first-quarter report and provide guidance for the second quarter. This is expected to have a significant impact on the stock price movement and the semiconductor sector.

Before the official disclosure, let's dig in a bit.

I. Quarterly Report Review and Management guidelines

Last quarter, TSMC's revenue was $19.6 billion, down 1.3% year-on-year:

The main reason for the decline was the decrease in PC and smartphone shipments after the pandemic. But compared to the third quarter, revenue increased by 13.6%.

This was mainly due to the end of PC and smartphone inventory destocking, coupled with the GPU boom, driving a 17% quarter-on-quarter increase in high-performance computing revenue.

High-performance computing (HPC) and smartphones are TSMC's two main revenue sources, accounting for a combined 86% of revenue.

Looking ahead to the first quarter of this year, management's revenue guidance is between $18-18.8 billion, and gross margin of 52% to 54%.

2. Analyst Expectations

According to Bloomberg data, analysts expect TSMC's first-quarter revenue to be $18.19 billion, adjusted net profit of $6.66 billion, estimated gross margin of 53%, high performance computing is expected to contribute 46.8% of revenue, a record:

Given the sales data that TSMC has already released, its revenue has already exceeded analysts' expectations. When the quarterly report is officially released, the market's focus will be on gross margin, high-performance computing revenue, and guidance for the next quarter.

3. Is rebound solely due to AI?

Since its low point last year, TSMC's stock price has skyrocketed 146%. Besides AI demand, how are its other businesses performing?

As mentioned earlier, TSMC's main revenues come from smartphones and high-performance computing, which includes GPUs and PC, data center and other businesses.

These two segments contribute nearly 90% of its revenue, so their performance determines the quality of TSMC's earnings.

According to preliminary results from IDC's Global Quarterly Personal Computing Device Tracker, after two years of decline, the global traditional PC market rebounded in the first quarter of 2024, with total shipments reaching 59.8 million units, a year-on-year increase of 1.5%.

IDC expected the recovery of the PC market to continue in 2024 as new AI PC models are expected to hit the market later this year.

Data on smartphone shipments is yet to be released, but taking the Chinese market as an example, shipments from January to February reached 46.035 million units, a year-on-year increase of 14.6%.

The Semiconductor Industry Association (SIA) released data earlier this month showing that global semiconductor industry sales totaled $46.2 billion in February, marking the largest year-on-year increase in nearly 23 months since May 2022.

So, besides the incremental demand from AI, traditional smartphone and PC businesses are also showing signs of recovery. TSMC is poised to embark on a super cycle.

Citigroup analysts expect TSMC's revenue growth to be 26% and 29% in 2024 and 2025, respectively.

In last year's fourth-quarter report, the management team predicted that the company's revenue in 2024 would grow by 20% to 25% year-on-year, with a compound growth rate of 15% to 20% in the coming years.

Let's see if the management team raises the revenue guidance for 2024 in the first-quarter report.

4.The current valuation of TSMC

As a cyclical stock and a heavy asset enterprise, TSMC's valuation is suitable for P/B ratio. From the indicator perspective, the current valuation is 6.1 times, still having some room compared to the 8.5 times valuation during the last semiconductor bull market.

Looking ahead to this bull market, the biggest difference is the AI revolution. It not only brings massive GPUs orders, but AI technology is also expected to penetrate into various industries, like AI PCs.

It's predicted that they will hit the market intensively in the second half of this year, potentially sparking a replacement trend and boosting the value of each device. For TSMC, it means both volume and price growth!