Taiwan Semiconductor Manufacturing Company (TSMC) reported a significant 39.6% year-over-year increase in revenue for September, reaching NT$251.8 billion, well above the average forecast. This strong performance contributed to its third-quarter revenue total of NT$759.69 billion ($23.6 bln), exceeding the company’s previous guidance range of $22.4 billion to $23.2 billion. The impressive results underscore TSMC’s role in meeting the rising demand for AI chips, driven by partnerships with tech giants like Apple, Nvidia, and AMD.
The company’s sequential revenue growth of 0.4% from August to September might seem modest but adds to a robust trend of year-over-year gains. This upward momentum is expected to continue into the third-quarter earnings report scheduled for October 17, with analysts anticipating further details on TSMC's performance in the AI and smartphone sectors. Analysts had earlier indicated that TSMC's strong sales in August were a positive signal that it might surpass its own third-quarter guidance.
Susquehanna recently revised its estimates ahead of TSMC’s third-quarter earnings, despite macroeconomic challenges in the second half of 2024. The firm increased its outlook, driven by higher demand for TSMC's leading-edge technologies (especially those under 7nm) and high-performance computing (HPC). Susquehanna also highlighted TSMC's continued momentum in AI and the ramp-up of SE4 for Apple as key factors supporting robust revenue growth projections of over 25% year-over-year in USD for 2024.
Looking further ahead, Susquehanna remains optimistic about TSMC's prospects into 2025, citing leadership in advanced packaging technologies like N2 and CoWoS-R/CoWoS-L as drivers for another year of strong growth. Despite expecting a seasonally weaker start in Q1 2025, they see the company's strengths in leading-edge nodes as critical to a stronger performance in the latter half of the year. These factors support their thesis of a sustainable earnings per share (EPS) opportunity of $10 through 2026, making TSMC an attractive long-term investment.
Analysts generally hold a bullish outlook on TSMC, with the stock currently rated as a Strong Buy based on five Buy ratings and no Holds or Sells over the past three months. The average price target of $205 implies a potential upside of approximately 12%, suggesting that TSMC is undervalued relative to its peers in the technology sector. The valuation reflects optimism around TSMC's growth prospects amid the ongoing AI boom and its strategic position in the semiconductor industry.
Despite the positive sentiment and strong growth indicators, concerns around geopolitical risks persist. TSMC's strong market performance has managed to somewhat decouple from these risks, but there remains a level of unpredictability tied to its exposure to geopolitical tensions, particularly involving China and Taiwan. While TSMC's valuation metrics seem attractive, these risks could weigh heavily on investor sentiment, especially as the stock trades at higher multiples than its historical averages.
Overall, TSMC's strong September revenue report sets a positive tone for its earnings next week. The upbeat analyst commentary, particularly from Susquehanna, emphasizes the company’s leading position in AI and HPC technology. However, the looming geopolitical risks suggest a cautious approach might be warranted for investors weighing the stock's long-term upside potential against its current valuation and market uncertainties.