Sign InSummary
As of March 8, 2024, Taiwan Semiconductor Manufacturing Company Limited (TSM) shows strong investment potential with its shares taking a slight dip but remaining bullish, underpinned by solid fundamentals and strategic expansion plans, leading to a 'Buy' recommendation.
Technical and Fundamental Analysis of TSM
Taiwan Semiconductor Manufacturing Company Limited (TSM) concluded the trading day on March 8, 2024, at $146.37, registering a decline of $2.83 (-1.90%) from the previous close. Despite this dip, the company's shares have showcased a remarkable upward trajectory from its year low of $81.21 to hitting a year high of $158.40 on the same day. This growth narrative is underpinned by a strong fundamental backdrop and buoyed by recent news that could influence future performance.
Fundamental Outlook
TSM's market capitalization stands at approximately $614.43 billion, reflecting its substantial presence and dominance within the semiconductor industry. The company boasts a healthy earnings per share (EPS) of $5.13 and trades at a price-to-earnings (PE) ratio of 28.53, suggesting a premium valuation that investors are willing to pay for its growth prospects and market position. Additionally, with an announced dividend yield of 0.37%, TSM demonstrates its ability to return value to shareholders, albeit modestly.
Recent news indicates TSMC's strategic move to expand its global footprint by establishing a chipmaking plant in the United States, with over $5 billion in federal grants reportedly secured. This expansion not only strengthens TSMC's competitive edge but also aligns with broader industry trends towards localization and supply chain diversification. Furthermore, the company reported an 11% revenue increase in February year-over-year, signaling robust operational momentum.
Technical Insights
From a technical perspective, TSM shows signs of bullish momentum with its last close significantly above both the 50-day moving average of $118.11 and the 200-day moving average of $101.38. The Relative Strength Index (RSI) stands at 74, indicating that the stock might be in the overbought territory, which could herald a potential short-term pullback.
The Moving Average Convergence Divergence (MACD) reading of 4.49 further confirms the positive momentum in the recent months. However, investors should be cautious of the stock's volatility, as denoted by an Average True Range (ATR) of 3.65, suggesting significant price movements can occur.
Predictions and Investment Potential
For the next trading day on March 11, 2024, and the upcoming week, TSM's performance could see a mild correction given the overbought RSI levels, but the underlying bullish trend is expected to continue, supported by strong fundamentals and optimistic industry news. The establishment of a US chip plant could serve as a long-term growth catalyst, enhancing TSMC's market share and geopolitical standing in the chip manufacturing domain.
Assessing the intrinsic value, based on the Discounted Cash Flow (DCF) of $72.23, suggests that the stock currently trades at a premium. However, given TSM's strategic positioning and future growth prospects, particularly in leveraging AI demand and expanding global operations, this premium might be justified.
Overall Evaluation
Considering the analysis, TSM is categorized as a 'Buy.' The recommendation stems from the company's solid fundamental performance, strategic expansion plans, and its pivotal role in the rapidly growing semiconductor industry. Investors should acknowledge the potential short-term volatility but focus on the long-term growth horizon, driven by increasing demand for semiconductors across various sectors, including AI, which TSM is well-positioned to capitalize on.
