On Friday, Nomura/Instinet maintained a Buy rating on Taiwan Semiconductor Manufacturing Co. Ltd. (2330:TT) (NYSE: TSM) stock, while increasing the price target to NT$1,400.00 from NT$1,355.00. The revised target comes after TSMC's recent analyst meeting where the company discussed its financial performance and outlook, particularly emphasizing the role of artificial intelligence (AI) in driving demand.
The semiconductor giant reported a robust gross margin (GM) for the third quarter of 2024, reaching 57.8%, and provided guidance for the fourth quarter GM to be between 57.0% and 59.0%. These figures exceeded market expectations and reinforced the belief that a GM above 55% could become the new standard for TSMC. This is attributed to favorable pricing dynamics and efficiency improvements from the capacity conversion of its advanced N5/3 technologies.
TSMC's forecast for fourth-quarter 2024 revenue growth is set at 13% quarter-over-quarter, surpassing both the analyst's prior estimate of 10% and the buy-side consensus of 5-10%. In light of this, Nomura/Instinet has increased its earnings per share (EPS) forecast for TSMC for the years 2024 to 2026 by 2-3%.
The price target adjustment is based on a 24x multiple of the forecasted 2025 EPS, which remains unchanged. The analyst underscored that TSMC's stock presents an attractive value at 18x/19x NMR/BBG 2025F EPS, noting it is trading at roughly a 20% discount compared to the SOX P/E ratio. The optimism is further bolstered by TSMC's guidance, which suggests that the impact of new overseas fabs on GM will be managed effectively, with only a 2-3 percentage point dilution expected in 2025.
In other recent news, Taiwan Semiconductor Manufacturing Company (TSMC) has been the subject of positive analyst attention following strong third-quarter results. Both BofA Securities and UBS have raised their price targets for TSMC, with BofA setting it at NT$1,400 and UBS at NT$1,300, while maintaining their respective buy ratings. The upward revisions come after TSMC reported a third-quarter earnings per share of NT$12.54, surpassing market expectations by 8%.
TSMC's third-quarter gross margin also made headlines, reaching 57.8%, higher than the company's guided range of 53.5-55.5%. This increase was attributed to higher utilization rates and cost improvements, particularly due to advancements in the 5/3 nanometer technologies. Additionally, TSMC has projected a gross margin expansion to 57.0-59.0% in the fourth quarter of 2024, exceeding previous expectations.
Both BofA Securities and UBS are optimistic about TSMC's future, citing the company's leadership in the semiconductor industry and potential for continued growth. UBS projects TSMC's gross margin to further increase to 58.5% in 2025, considering factors such as a price increase on N5/3 technologies, improved utilization, and a decrease in N3 dilution.
Moreover, TSMC reported a 12.8% sequential revenue increase to NT$23.5 billion in the third quarter of 2024, driven by strong demand for 3-nanometer and 5-nanometer technologies in smartphones and AI applications. The company also anticipates Q4 2024 revenue to be between $26.1 billion and $26.9 billion. These recent developments underline TSMC's robust financial performance and promising growth trajectory.
InvestingPro Insights
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) continues to demonstrate strong financial performance, aligning with Nomura/Instinet's optimistic outlook. According to InvestingPro data, TSM's revenue growth remains robust, with a 22.65% increase over the last twelve months as of Q3 2024. This growth is even more pronounced on a quarterly basis, with Q3 2024 showing an impressive 38.95% revenue growth.
The company's profitability metrics are equally compelling. TSM boasts a gross profit margin of 54.45% and an operating income margin of 42.04% for the last twelve months, reflecting its operational efficiency and pricing power in the semiconductor market. These figures support the analyst's view on TSMC's ability to maintain high gross margins.
InvestingPro Tips highlight TSM's strong dividend performance, with a 42.34% dividend growth over the last twelve months. This, coupled with a current dividend yield of 0.95%, underscores the company's commitment to shareholder returns amid its growth trajectory.
For investors seeking a deeper understanding of TSM's potential, InvestingPro offers 16 additional tips, providing a comprehensive analysis of the company's financial health and market position.
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