To The Moon

TSMC is the world’s largest contract chipmaker. The company counts Apple, AMD, Nvidia and Qualcomm among its customers. 

TSMC had a 53% market share in the global semiconductor foundry market in 2021, while its nearest competitor Samsung had 17.1%. Not only that, TSMC is the most advanced foundry and produces over 90% of all advanced chips on the market.

During the quarter ended March 31, revenue was $17.57 billion, which increased 36.0% year-over-year and increased 11.6% from the previous quarter. The gross margin and revenue have exceeded the company’s expectations but TSMC stock fell despite the positive report yesterday. It is under severe pressure since hitting fresh all time high of $145 in January. The stock has declined almost 30% since then and recently sank below the $98 mark for the first time in over a year. The stock has been pulled down by a broader downturn in technology securities, notably chip makers. Other semiconductor stocks such as Nvidia and AMD, have also fallen in recent months as concerns over Fed rate hikes this year continue to pressure tech stocks. Higher rates reduce the present value of future cash flows, which can impact growth stock

TSMC has a 50-day moving average of $109.12 and a 200-day MA of $116.33. It has a 52w low of $96.91 and a 52w high of $145.00

If the current downtrend continues as suggested by the bearish RSI and the 50-day MA continues to sink further below the moving averages, then the 52w low will be tested again and if broken, could see shares fall to the next key level of support in the range of $95.00

Q2 FY22 Outlook

The ongoing chip shortage and consequent rise in chip prices have paved way for TSMC to boost their production capacity to increase profit margin.

Slower sales in the inflation hit consumer price electronics market would be offset by gains in the HPC segment. It believes that robust demand for HPC applications and increases in semiconductor content in 5G smartphones would fuel revenue growth.

Management expects revenue to be between US$ 17.6 billion and US$ 18.2 billion.

Gross profit margin to be between 56% and 58%

Operating profit margin to be between 45% and 47%

The Bottom Line

TSMC will perform well in the next decade barring any unforeseen circumstances. In the second half of 2022, demand for 7nm will continue. 5nm demand will accelerate, lifting the company’s gross margins. 

Investors seeking value may take advantage of the market’s fear of global events that are out of the company’s control. The wide discount will eventually shrink as the negative sentiment reverses.

If you agree with the management’s expectation, then it is a good pick in for long term investors that want to be exposed to HPC & 5G over the coming years. The stock is reasonably valued, it pays a healthy dividend, and it will remain the world's top contract chipmaker for the foreseeable future. 

After all, is this the time to buy TSMC? 

Disclaimer: The information and data made available in this post including facts, views, analysis, opinions are for general information purposes only. It is NOT intended as any buy-sell advice.