Earnings Preview丨Strong AI Demand Bolsters TSMC
The demand for chip manufacturing remains robust, as evidenced by $Taiwan Semiconductor Manufacturing(TSM)$ 's early Q3 net sales data. The company is seeing strong demand from major AI market customers, primarily $NVIDIA Corp(NVDA)$ and $Apple(AAPL)$ , which led to an acceleration in TSMC’s September net sales.
Positive Signs for Q3 Earnings
The early net sales release bodes well for TSMC's Q3 earnings report. With a favorable entry point for investors and a solid valuation multiple, TSMC could be a long-term success story for investors.
TSMC is benefiting from the surge in 5nm chip demand and the growing needs in high-performance computing (HPC). NVIDIA has been a market leader in sales growth and recently informed investors that its Blackwell chips are sold out.
Major tech companies like $Meta Platforms, Inc.(META)$ $Amazon.com(AMZN)$ $Alphabet(GOOG)$ $Alphabet(GOOGL)$ are heavily investing in new AI chips, scrambling to secure GPUs capable of handling demanding AI tasks. These companies dominate the hyperscale market, driving significant growth for TSMC.
In Q2, HPC accounted for over half of TSMC’s sales, a proportion likely to increase in Q3. By the end of the year, HPC sales could make up about 55%, with potential further growth in 2025.
Profit Margins and Investor Confidence
With AI momentum continuing, TSMC has a strong chance of exceeding its guidance, particularly in gross margin and operating profit margin. For Q3 2024, TSMC expects its operating profit margin to rise by 2 percentage points from Q2’s 42.5%.
The market currently expects last quarter’s earnings per share to be $1.80, a 40% year-on-year increase. For the fiscal year, earnings per share are projected at $6.58, up 27% year-on-year.
TSMC's September net sales report strongly indicates that the chip manufacturing capacity market is far from a danger zone. In fact, the opposite is true: chip companies are racing to meet production orders, signaling a positive near-term outlook for TSMC.
Potential Alpha Opportunity
As the Q3 2024 earnings date approaches, TSMC presents a potential Alpha Opportunity（Opportunities for excess returns in the investment space）, especially following the accelerated growth in September net sales compared to the previous month. Although September’s sales growth wasn’t as strong as July’s, a 40% year-on-year increase in net sales is nothing to complain about.
Analysts expect TSMC to exceed its Q3 2024 revenue and gross margin forecasts, giving investors no reason to cut back on their TSMC investments.
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