Morningstar Key Indicators for Taiwan Semiconductor Manufacturing
What we thought about Taiwan Semiconductor Manufacturing’s earnings
Despite excellent guidance and results, we maintain Taiwan Semiconductor Manufacturing TSM’s fair value estimate at $213 per share, as Taiwan Semiconductor Manufacturing TSM’s long-term fundamentals remain largely unchanged. TSMC is the go-to foundry for artificial intelligence chips and is the only company with enough scale to meet content’s growing demand for cutting-edge chips in both AI and other applications. The stock price remains attractive.
TSMC expects fourth-quarter sales to reach NT$848 billion ($26.5 billion, an increase of 12.8% in US dollar terms) at the midpoint, an increase of 11.6% from the previous quarter, and 2024 sales of 2. We expect this to be NT$ 870 billion, exceeding our previous full-year forecast of NT$ 2.7 trillion. Expect higher-than-expected growth in 3nm mobile and AI products. Gross margin and operating margin guidance increased slightly sequentially to 58% and 47.5% at the midpoint, respectively, well above our gross margin forecast of 55%. As a result, the company has increased its 2024 revenue and earnings per share forecasts by 6% and 10%, respectively.
Third quarter results far exceeded expectations. Revenue was NT$760 billion, an increase of 13% quarter-over-quarter. Gross margin and operating margin improved nearly 5 percentage points from the prior quarter to 57.8% and 47.5%, respectively. This impressive number is due to the increased utilization believed to be concentrated in 5nm and 7nm processes as AI capabilities drive additional chip content on PCs and smartphones. During the quarter, our efforts to eliminate bottlenecks were successful, and we were able to ship more AI chips than expected.
Management did not provide numbers, but said capital spending in 2025 is likely to be higher than in 2024, in line with the company’s view of 20% year-over-year growth. Back-end packaging capacity remains tight, reflecting the Nvidia NVDA CEO’s view of “insane” demand.
The author owns no shares in any securities mentioned in this article.
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