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A chip giant beats market expectations, but its shares sink: what’s behind it

A chip giant beats market expectations, but its shares sink: what’s behind it

Taiwan Semiconductor (TSM) presented results this Thursday before the market opened. As the market expected, the Taiwanese firm exceeded expectations for the first quarter, but its shares sink despite it. Here is the reason.

Shares of Taiwan Semiconductor Manufacturing Company (TSM) fell nearly 6% since the start of trading, even though the company beat analyst estimates in both revenue and profits for its first quarter. Subsequently, the papers moderate the fall and are around 4%.

In the three months ended March 31, the Taiwan-based chipmaker, whose clients include notable stocks Magnificent 7 Nvidia (NVDA) and Apple (AAPL), It said revenue rose 12.9% year-on-year to $18.9 billion.

Earnings per share (EPS) increased 8.9% to $1.38 from the prior-year period. TSM also reported a gross margin of 53.1% and an operating profit margin of 42%, compared to 56.3% and 45.5%, respectively, in the prior-year period.

The results beat analyst expectations for revenue of $18.4 billion and EPS of $1.32, according to Yahoo Finance.

The results also exceeded or met the guidance TSM provided earlier this year, which called for revenue in the range of $18 billion to $18.8 billion, a gross margin of 52% to 54% and a operating profit margin of 40% to 42%.

“Our business in the first quarter was impacted by smartphone seasonality, partially offset by continued HPC-related demand,” he said. Wendell Huang, senior vice president and chief financial officer of TSM, in a statement. “Going into the second quarter of 2024, we expect our business to be supported by strong demand for our leading 3-nanometer and 5-nanometer technologies, partially offset by continued smartphone seasonality.”

Taiwan Semiconductor also provided its outlook for the second quarter of 2024, with revenue in the range of US$19.6 billion to US$20.4 billion, a gross profit margin of 51% to 53% and a profit margin operating in the range of 40% to 42%. As a point of reference, the company reported second-quarter 2023 revenue of $15.7 billion, a gross margin of 54.1% and an operating profit margin of 42%.

“Almost all AI innovators are working with TSMC to address the insatiable AI-related demand for energy-efficient computing.”” CC Wei, CEO of Taiwan Semiconductor, said on the company’s conference call. “We expect the revenue contribution of various AI processors to double this year and account for a low-single-digit percentage of total revenue in 2024.”

So why are Taiwan Semiconductor shares falling?

Despite TSM’s strong earnings results, semiconductor stocks, as mentioned, are trading noticeably lower today. The reason for this, according to several media reports, is that the company made a slight change to its 2024 semiconductor outlook..

Specifically, TSM now expects total growth of “about 10% year-over-year,” excluding memory chips, Wei said on the conference call, compared to previous expectations for growth of “more than 10%.”

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Reuters

Analysts are very bullish on the semiconductor maker. According to S&P Global Market Intelligence, the average analyst price target for TSM stock is $155.17., representing an implied upside potential of approximately 15% from current levels. Furthermore, the consensus recommendation is Buy.

One of the analysts bullish on tech stocks is Needham’s Charles Shi, who has a Buy rating on TSM and a $168 price target. This represents more than 25% above Taiwan Semiconductor’s current price.

Source: Ambito

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