TSM Faces Short-Term Volatility Amid Long-Term AI Growth Potential: A Cautious Investment Outlook

Technical Analysis

Taiwan Semiconductor Manufacturing Company Limited (TSM) closed at $149.86 on August 2, 2024, reflecting a decline of $8.32 or 5.26% from the previous trading session. The stock is currently trading below its 50-day moving average of $168.93, indicating potential bearish momentum in the short term.

The Relative Strength Index (RSI) is at an extreme low of 26, suggesting that TSM is oversold, which could lead to a short-term rebound. Immediate support is identified at $149.26, while resistance is located at $171.20. The Moving Average Convergence Divergence (MACD) is at -4.07, further indicating bearish sentiment.

Volume was notably higher than average, at approximately 29.03 million compared to the average of 16.41 million, signaling increased interest potentially instigated by the recent news cycle.

Fundamental Analysis

TSM has a market capitalization of $701.15 billion, with a price-to-earnings (P/E) ratio of 29.33 and earnings per share (EPS) of $5.11. The stock has seen significant volatility, with a year high of $193.47 and a low of $84.02. The company's discounted cash flow (DCF) analysis indicates an intrinsic value at approximately $68.67, suggesting that the stock is currently overvalued at its last close price.

Recent news highlights that TSM is well-positioned to capitalize on growth in the AI sector, particularly with 2nm technology advancements. The raised capital expenditure (capex) guidance indicates confidence in future operational growth, which could reassure long-term investors despite the short-term volatility.

Predictions and Outlook

Given the current bearish trend, the stock is likely to experience continued pressure in the immediate term, particularly if broader market sentiments remain negative post-Intel earnings fallout. However, the oversold conditions may prompt a rebound on the next trading day (August 5, 2024), especially if buyers capitalize on lower prices. For the upcoming week, volatility is expected, with fluctuations potentially leading to a trading range between the support level of $149.26 and the resistance at $171.20.

The outlook remains cautious, with potential for improvement driven by long-term demand in AI and semiconductor technology.

Long-Term Investment Potential

Despite short-term headwinds, TSM’s leading position in the semiconductor market, accelerated by demand for cutting-edge technology and AI advancements, paints a favorable long-term investment thesis. With strong fundamentals, including planned capital investment in next-generation technology, TSM may stand to benefit considerably in a recovering tech landscape.

Overall Evaluation

TSM is categorized as a 'Hold' candidate. The combination of technical indicators pointing to short-term weakness and bullish long-term fundamentals creates a complex scenario. While there is a potential for price recovery, the intrinsic valuation suggests caution against entering at current levels. Investors may wish to monitor upcoming earnings and market conditions closely, particularly for signs of stabilization or negative developments in semiconductor demand.