Taiwan Semiconductor Manufacturing Today
Taiwan semiconductor manufacturing
- 52 week range
- US$100.00
▼
$222.20
- Dividend yield
- 0.89%
- P/E ratio
- 34.46
- Target price
- $217.00
Taiwan semiconductor manufacturing New York Stock Exchange: TSM did it again in its latest earnings report. The company impressed the markets with its fourth-quarter results, leading shares to rise significantly on the day. The report marked the company’s 14th consecutive quarter of beating adjusted earnings per share (EPS) estimates.
The global chip king continues to show strength, driven by demand for advanced node technology. Below, I’ll delve into more specific details of the report and put them in the context of my overall view of Taiwan Semiconductor Manufacturing Company, also known as TSMC.
TSMC shares rise on solid earnings
Overall, TSMC’s report is filled with positive developments. This included revenue, which was up 37% compared to the fourth quarter of 2023 and up more than 14% compared to the third quarter of 2024. The company also saw significant earnings growth both year-over-year and quarter-over-quarter. The 740 basis point increase in operating margin compared to 2023 was particularly strong. Important are sales of advanced nodes, which describe wafers manufactured using seven nanometer (nm) or smaller technology.
Smaller nanometer chips can perform more complex tasks because more transistors can fit onto the same surface area. This increases their processing power and also helps them use energy more efficiently. These seven nm and smaller technologies overlap in many ways with the high-performance computing (HPC) endpoint. For the full year, HPC sales accounted for 51% of total revenue and posted the highest growth rate at 58%.
As is the case with many companies with high expectations behind them, beating estimates alone is often not enough to drive a stock higher. Providing clear guidance for the future is also very important. In the first quarter of 2025, TSMC also checked this box. Even though revenue and profit were down markedly from the fourth quarter, the numbers still beat expectations. This slowdown is largely due to seasonally low demand for smartphones after the holidays.
Although the company’s financial results are unlikely to be as strong as in 2024, TSMC still expects 2025 to be a very strong year. The company projects revenue growth of about 20 percent. Revenue from artificial intelligence accelerators is also expected to double in a year after tripling in 2024.
Taiwan Semiconductor Manufacturing Company Limited (TSM) price chart for Friday, January 17, 2025.
Analysis of key geopolitical risks: US vs. China
One of the biggest risks many point to for TSMC is geopolitical tensions between the United States and China. The United States has made determined efforts to limit China’s access to advanced semiconductor technologies by imposing import bans on certain products. On January 15, President Biden introduced additional controls to keep advanced chips out of the hands of the Chinese. This appears to be a significant short-term risk, even though TSMC management views the impact as minimal.
Hedge fund manager and founder of J and J Investment Jonah Cheng believes the new rules could potentially have a significant impact on TSMC’s business. He estimates they will have at least a 7% impact on TSMC’s earnings as they also include restrictions on automotive chips. If control continues to extend to Bitcoin mining chips, this impact could reach more than 15%. On the other hand, TSMC said that in 2023, only 12% of its revenue came from China. However, accounting nuances affect what a company considers to be revenue from a particular country. They may differ from how analysts calculate.
It will be interesting to see what percentage of revenue TSMC attributes to China in its next annual report (20-F). This report is due out in mid-April. In its earnings call, TSMC management likely allayed some concerns about this risk. They said they are applying for special permits to prevent non-AI clients from being impacted. If it manages to achieve this, the impact on the company’s revenue could be as low as 4%, according to Cheng’s analysis.
TSMC: Long-term winner facing short-term challenges
Overall, TSMC continues to maintain an incredibly wide moat in the field of advanced chip manufacturing, ensuring its position as a leading company for the foreseeable future. The company also makes significant efforts to please the US government. Production of the 4nm process should begin at the Arizona plant in the first half of 2025. The company also plans to open another plant in the state with even more advanced processes available by 2028.
However, government control may lead to short-term volatility. This is especially true given the uncertainty about what the Trump administration might do. Sorting out the details of the startup of a new U.S. chip plant could also cause disruption. Overall, I remain bullish on TSMC stock over the long term; however, these are important short-term risks to consider.
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