Strong Technical Momentum and AI Demand Drive TSMC as a 'Buy' Opportunity, 1 week ago

Taiwan Semiconductor Ticker: TSM

Name: Taiwan Semiconductor Manufacturing Company Limited

Technical Analysis

On July 09, 2024, Taiwan Semiconductor Manufacturing Company Limited (TSMC) closed at $184.52, exhibiting a decline of 1.13% from the previous trading day. The stock's intraday performance saw a low of $182.50 and a high of $188.44. TSMC's 14-day Relative Strength Index (RSI) stands at 59, indicating that the stock is moving towards the upper end of a neutral range, nearing overbought territory.

Technical indicators show the stock is trading above its 50-day and 200-day moving averages, with the 50-day MA at $159.07 and the 200-day MA at $123.65, signifying a strong upward momentum. The Moving Average Convergence Divergence (MACD) over a three-month period is 6.98, showcasing positive momentum. The Average True Range (ATR), a measure of volatility, is at 3.04.

Support is established at $179.69, while resistance stands at $186.63. Considering the proximity to resistance and the current trends, TSMC could see a modest upward move in the short term if it breaks past significant resistance levels.

Fundamental Analysis

TSMC’s market capitalization is at $816.91 billion, reflecting a significant valuation within the semiconductor industry. The stock has a P/E ratio of 35.69 based on an EPS of $5.17, positioning it higher than the industry average and indicating robust earnings performance.

The company's upcoming earnings announcement on July 18, 2024, adds an element of volatility and potential upward movement if results exceed expectations. Moreover, TSMC is poised to pay dividends on July 11, 2024, with a yield of 0.24%, reinforcing shareholder value.

Despite a discounted cash flow (DCF) valuation of approximately $63.11, which suggests overvaluation against the current trading price, the broader market sentiment remains optimistic. The target price projections range broadly, with a median target of $184 and consensus at $173.25, indicating mixed expectations.

Taiwan Semiconductor Recent News and Sector Context

TSMC’s position as a critical supplier for AI chips has fueled substantial interest and investment. Recently, the stock briefly crossed the $1 trillion market cap, attributed to gains in the semiconductor sector led by companies like Nvidia. The surge is further bolstered by the burgeoning demand for AI-related technology, reaffirming TSMC’s market leadership.

Morgan Stanley’s forecast indicating potential upward revision of FY sales projections and TSMC reaching new record highs underline strong market confidence. The broader industry trend suggests that semiconductors, particularly those involved in AI, are set to ride the AI revolution wave.

Stock Performance Prediction

Next Trading Day (July 10, 2024): Given the technical indicators and recent momentum, TSMC is likely to experience marginal gains, potentially testing resistance at $186.63 if market sentiment remains positive.

Upcoming Week: Over the upcoming week, with earnings announcements on the horizon and dividend payouts, TSMC may exhibit volatility but is likely to trend upwards. The stock might surpass recent highs, contingent on favorable earnings results and market conditions.

Intrinsic Value and Long-Term Investment Potential

While the DCF suggests TSMC is overvalued in the short term, the company’s intrinsic value is underpinned by its pivotal role in AI technology and robust demand projections. TSMC's market leadership and strategic importance in the semiconductor space position it well for long-term growth, despite high current valuations.

Overall Evaluation

Given the data and analysis, TSMC is categorized as a 'Buy' candidate. The justification includes strong technical momentum, positive market sentiment, forthcoming earnings with potential for favorable surprises, and significant long-term growth potential driven by AI industry trends. The stock’s recent high valuation is balanced by its strategic positioning and robust financial health.

Check full Taiwan Semiconductor forecast and analysis here.