TSM Overbought with Strong Momentum: Analysis & Predictions

Technical Analysis

Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) closed at $173.96 on June 21, 2024, down 0.81% from the previous trading day. The trading range for the day was between $172.22 and $177.48. With a Relative Strength Index (RSI) of 74, TSM is currently overbought, indicating potential for short-term price correction. Additionally, TSM's 50-day moving average at $150.63 and 200-day moving average at $118.96 reveal strong upward momentum. The MACD value of 6.02 supports the bullish trend, while the Average True Range (ATR) at 3.18 suggests moderate volatility.

For the next trading day (June 24, 2024), TSM is expected to test the resistance level at $175.38. Momentum indicators propose potential pressure for a minor pullback or consolidation within the $172.22 to $175.38 range.

Fundamental Analysis

TSM stands out with a market cap of approximately $778.41 billion and an EPS of $5.19, translating to a PE ratio of 33.52. A DCF valuation at $65.40 per share implies that the stock is significantly over its intrinsic value, highlighting elevated market expectations. The upcoming earnings announcement on July 18, 2024, and dividends distribution on July 11, 2024, may act as catalysts for stock movement.

The company's position as a critical supplier in the AI hardware domain, specifically for industry leaders like Apple and Nvidia, reflects robust demand in the near term. Recent news suggests that TSM will likely benefit from increased iPhone demand and its critical role in the AI sector.

Short-Term Predictions

In the upcoming week, TSM's stock price will likely fluctuate, testing crucial support and resistance levels. The heightened volume at 16.92 million against the average 14.25 million indicates strong investor interest, potentially leading to continued upward pressure. The sentiment is supported by positive news about the company's prospects within the AI and broader tech landscape.

Intrinsic Value and Long-Term Investment Potential

The intrinsic value derived from DCF suggests a significant overvaluation, questioning sustainability at current price levels. Yet, TSM's strategic partnerships and pivotal role in the evolving AI industry present a favorable long-term growth prospect.

Overall Evaluation

Considering all factors, TSM is categorized as a 'Hold'. The current overvaluation and overbought technical indicators temper near-term optimism, suggesting caution. However, TSM's fundamental strength and strategic position in key growth sectors justify maintaining existing positions while monitoring for pullback opportunities.