To The Moon

• TSMC's $Taiwan Semiconductor Manufacturing(TSM)$ share price closed 0.55% lower on Wednesday.

• It might open higher tonight due to earnings beat.

 1Q2024 Earnings:

• Both Net Revenue and Net Income exceeded LSEG consensus estimates by 1.7% and 5.5%, respectively.

• Net Revenue increased by 16.5% year-over-year to NT$592.64 billion, while Net Income also rose by 16.5% year-over-year to NT$592.64 billion.

• However, both Net Revenue and Net Income experienced quarter-over-quarter declines of -5.3% and -5.5%, respectively.

• Both Gross Margin and Operating Margin remained robust at 53.1% and 42% in the quarter.

• The 3nm process technology contributed 9% of total wafer revenue in 1Q24, with 5nm and 7nm accounting for 37% and 19%, respectively. Advanced technologies (7nm and below) represented 65% of total wafer revenue, slightly lower than the 67% observed in 4Q2023.

Source: TSMC

Source: TSMC

Forecast

• The forecasted CAPEX for 2024 remains substantial, ranging from USD28 billion to USD32 billion, compared to Bloomberg's consensus estimate of USD28.98 billion.

• Sales for 2024 are anticipated to grow in the low to mid 20% range.

In 2Q2024:

• Net Sales are expected to range from $19.6 billion to $20.4 billion.

• Gross margin is anticipated to fall between 51% to 53%, compared to the consensus estimate of 52.8%.

• Operating margin is projected to be between 40% to 42%, as opposed to the consensus estimate of 41.3%.

• The gross margin for the second quarter is expected to be impacted by 50 basis points due to the earthquake.

• Higher power costs are expected to affect gross margin by 70-80 basis points in the second quarter.

• Management foresees the long-term gross margin to be at least 53%.

 Conclusion:

• TSM stock is currently trading 6.82% lower than its all-time high.

• Its PE ratio stands at 24.3x, compared to a 10-year average PE ratio of 18.29x. While TSM valuations may seem expensive and the stock price has frontloaded much of the optimism surrounding AI, we believe that earnings growth momentum remains a crucial factor to consider when investing in a stock, especially in a bull market. So far, TSM has surpassed earnings expectations.

• The TSM earnings beat could reignite investor interest in the semiconductor industry following the recent downturn triggered by ASML's performance yesterday.

• We remain optimistic about the AI bull market's trajectory. Semiconductor stocks (such as $ASML Holding NV(ASML)$ , NVDA $NVIDIA Corp(NVDA)$ , TSM, AMD) and semiconductor ETFs (SMH and SOXX) are positioned to benefit from the ongoing secular growth trend in AI.

• Bloomberg's 12-month consensus target price for TSMC is USD153.68, indicating a potential upside of 10.5% relative to yesterday's closing price of USD139.03.