TSM Earnings Preview: All eyes on CapEx guidance
AInvestWednesday, Oct 16, 2024 3:29 pm ET
2min read
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TSM --

Taiwan Semiconductor Manufacturing Company (TSMC) is scheduled to release its Q3 earnings before the market opens on October 17, with analysts expecting a significant jump in profit driven by soaring chip demand, particularly from AI and advanced technology sectors. Analysts project TSMC to report net profit of T$298.2 billion ($9.27 billion), a 40% year-over-year leap, up from T$211 billion in the same period last year. EPS is forecast to come in at $1.80 with revenue reaching $23.1 billion. A critical focus will be on TSMC’s capital expenditure (CapEx) outlook, especially in the wake of ASML's recent miss. If TSMC lowers its CapEx guidance, it could impact broader tech sector sentiment.

Monthly sales data has already provided positive signals for TSMC’s Q3 performance:

- July: Revenue jumped 44.7% year-over-year to NT$256.95 billion ($7.94 billion), setting a record and signaling strong demand across key segments.

- August: Revenue reached NT$250.87 billion ($7.72 billion), reflecting a 33% YoY increase, though it marked a slight decline of 2.4% from July’s peak.

- September: Sales rose 40% YoY to NT$759.7 billion ($23.6 billion), surpassing projections and bolstering expectations of a strong quarter for the company.

TSMC is poised to report a robust Q3, with revenue expected to beat its own guidance range of $22.4 billion to $23.2 billion, based on its earlier reported numbers. The company benefits from strong demand for AI and high-performance computing (HPC) chips, which have driven growth in its advanced 5nm and 3nm processes. Despite macroeconomic headwinds, the ramp-up in production of advanced nodes for key customers like Nvidia and Apple continues to fuel optimism. Analysts also highlight the potential for sustainable EPS growth through 2026, driven by the leadership in cutting-edge technologies.

CapEx will remain a critical point of discussion, particularly following TSMC's prior guidance of $30-32 billion for 2024. Investors will watch for any updates in light of the semiconductor industry's mixed outlook and the ASML report. A downward revision in CapEx could weigh on sentiment in the broader tech space given TSMC’s leadership in AI-related chip production may offset some concerns.

Taiwan Semi delivered strong second-quarter results, with revenue of $20.82 billion, surpassing the consensus estimate of $20.23 billion. The company benefited from surging demand for chips used in artificial intelligence (AI), leading to a guidance raise for the rest of the year. Despite these solid results, semiconductor stocks faced broader market challenges due to geopolitical concerns, particularly potential further U.S. restrictions on chip exports to China and former President Donald Trump's comments regarding Taiwan. TSMC remains a key supplier for major companies like Apple and Nvidia, both of which are critical to its growth in the AI chip sector.

On the capital expenditure (CapEx) front, TSMC updated its 2024 CapEx guidance to $30-32 billion, slightly raising the lower end of its previous $28-32 billion range. This move signals TSMC’s continued investment in its cutting-edge manufacturing capabilities, though the impact on equipment suppliers was muted given the previous stock run-up in those names. Investors are closely monitoring TSMC's CapEx plans, as the company is expected to provide further details on its 2025 spending. Its early indication was that it expects CapEx to grow 20% in 2025.

For its full-year guidance, TSMC raised its revenue growth expectations to the mid-20% range in U.S. dollar terms, citing strong AI-driven demand. The company guided Q3 sales to land between $22.4 billion and $23.2 billion, with gross margins expected to come in between 53.5% and 55.5%. Despite headwinds, TSMC's leadership in advanced chip production continues to support its long-term outlook, and investors remain optimistic about the company’s role in AI and high-performance computing markets.

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