To The Moon

Concerns over the Federal Reserve’s monetary policy tightening, and intensifying supply chain disruptions have driven the tech sector to a sell-off of late. However, considering technology products and services’ solid long-term growth prospects we think it could be an opportune time to buy high-quality tech stock Taiwan Semiconductor Manufacturing$Taiwan Semiconductor Manufacturing(TSM)$ on its recent price dips.

The COVID-19 pandemic-induced rapid digitalization and consumers’ growing reliance on tech products and services have helped the tech industry thrive. Furthermore, increasing corporate and government investments and continuing technological breakthroughs should drive the industry’s growth.

However, because it is interest-rate sensitive by nature, the industry suffered a massive sell-off lately with the Fed tightening its ultra-loose monetary policy to fight multi-decade high inflation. While many tech stocks may not yet have hit bottom, considering the industry’s solid growth prospects, many high-quality stocks are now trading at attractive prices.

Therefore, we think it could be an opportune time to buy high-quality tech stocks，TSM downs 20% in price or more year-to-date.

Hsinchu, Taiwan-based TSM manufactures, sells, and packages integrated circuits and other semiconductor devices and provides computer-aided design services. The company offers wafer manufacturing, probing, assembly, testing, mask production, and design services. It serves customers in the computer, communications, consumer, and industrial and standard segments worldwide.

On Feb. 15, 2022, TSM announced that Japan-based automotive components manufacturer DENSO Corporation would take a minority stake in TSM’s majority-owned manufacturing subsidiary Japan Advanced Semiconductor Manufacturing, Inc. (JASM), with a $350 million investment. Expected to begin production by 2024, TSM will enhance JASM’s capabilities with 12/16 nanometer FinFET process technology in addition to a previously announced 22/28 nanometer process and increase monthly production capacity to 55,000 12-inch wafers.

TSM’s net revenue for its fiscal year 2022 first quarter ended March 31, 2022, increased 35.5% year-over-year to $17.57 billion. The company’s gross profit came in at $9.77 billion, up 43.9% from the prior-year period. Its income from operations increased 48.7% year-over-year to $8.01 billion. While its net income increased 45.2% year-over-year to $7.26 billion, its earnings per ADR grew 45.1% to $1.40. The company had $40.27 billion in cash and cash equivalents as of March 31, 2022.

Analysts expect the company’s EPS to hit $5.76 for its fiscal year 2022 ending Dec. 31, 2022, representing a 39.8% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $72.29 billion consensus revenue estimate for the same fiscal year indicates a 27.2% year-over-year improvement. Analysts expect TSM’s EPS to improve at a 20.2% rate per annum over the next five years.

TSM’s trailing-12-month gross profit margin, EBITDA margin, and net income margin are 38.4%, 66.7%, and 38.4%, respectively. The stock has declined 20.2% in price year-to-date and ended yesterday’s trading session at $95.99, down 35.4% from its 52-week high of $145.

TSM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has an A grade for Quality and a B grade for Growth, Sentiment, and Stability.

TSM is ranked #20 of 95 stocks in the A-rated Semiconductor & Wireless Chip industry.