TSMC: Should You Buy, Hold, or Take Profits? I am Holding!
$Taiwan Semiconductor Manufacturing(TSM)$ recently joined the exclusive $1 trillion market cap club, with its stock hitting $212 on the back of strong Q3 2024 earnings. The company reported a net profit of T$325.3 billion ($10.11 billion), exceeding analysts' expectations. Given TSMC’s role as the dominant player in AI chip manufacturing, particularly for clients like Nvidia and Apple, investors are questioning whether the stock can double again or if it’s time to take profits.
Fundamentals: A Look at TSMC’s Growth Drivers
TSMC’s impressive 36.5% revenue growth year-over-year in Q3 2024 reflects its robust position in the semiconductor industry. A significant chunk of this growth is fueled by the surging demand for AI chips, used in everything from cloud computing to large language models. With AI-related orders driving much of its 2024 momentum, the company raised its full-year revenue growth outlook to approximately 30%, up from mid-20% estimates earlier in the year.
Moreover, the semiconductor giant has benefited from geopolitical tailwinds, securing $6.6 billion in U.S. government subsidies as part of the CHIPS Act, to boost local production in Arizona. This not only diversifies its production footprint but also strengthens relationships with U.S. clients reliant on high-performance chips for AI infrastructure.
However, TSMC’s dominance is not without challenges. Industry-wide concerns about overcapacity and demand volatility, as highlighted by reduced forecasts from ASML, have kept some investors cautious. Although TSMC has outpaced competitors like Intel and Samsung, the broader slowdown in semiconductor orders post-pandemic could temper future growth rates.
Technical Analysis: Rally Momentum and Market Sentiment
TSMC’s stock has surged approximately 72% year-to-date, far outperforming Taiwan’s broader market, which rose 26% over the same period. After briefly crossing the $1 trillion mark, the stock’s momentum suggests strong investor confidence, driven by stellar earnings and bullish AI prospects. Yet, as the stock trades near its all-time highs, questions of valuation arise. At $212 per share, some analysts believe TSMC may already reflect much of the near-term growth potential.
On the technical front, the stock is currently in overbought territory, with RSI levels indicating that a correction could be on the horizon. Given the sharp rally this year, profit-taking could occur, particularly if macroeconomic factors or geopolitical tensions disrupt the semiconductor supply chain.
What am I Doing? Hold with Caution and Selective Exposure
For long-term investors following a value-oriented approach, TSMC remains a strong candidate due to its market leadership, attractive margins, and exposure to AI. However, with the stock trading near record highs, adding more at this level may introduce valuation risks. My prudent strategy is to hold existing positions while waiting for a pullback to accumulate more shares.
Alternatively, for those looking to manage risk and secure profits, increasing exposure to ETFs like the $VanEck Semiconductor ETF(SMH)$ offers diversified access to the semiconductor space without concentrated exposure to TSMC alone. This can mitigate volatility while still capturing growth in AI-driven demand.
Please DYODD.
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