TSM Shows Strong Growth, Potential Overvaluation: Technical and Fundamental Analysis

StockInvest.us, 2 months ago

Taiwan Semiconductor Technical Analysis

Taiwan Semiconductor Manufacturing Company Limited (TSM) closed at $151.95 on May 14, 2024, showing a robust increase of 3.78% from the previous close. The stock is currently trading near its year high of $158.40, demonstrating strong upward momentum. However, the Relative Strength Index (RSI14) stands at 76, indicating that the stock is in overbought territory, which might suggest a potential pullback or consolidation in the short term.

Volume-wise, TSM’s recent trading volume of 12.23 million is slightly below its average volume of 15.43 million, which could imply reduced market participation. The stock’s 50-day and 200-day moving averages are $139.72 and $110.26, respectively. With the current price far above these averages, the medium to long-term trend remains bullish. The ATR (2.94) indicates moderate volatility.

The MACD over the past three months shows a value of -0.94, which is slightly bearish, signaling a potential short-term correction. TSM’s immediate support level is at $149.2, and the stop-loss set at $145.35 provides a buffer against potential downside risks. With no defined resistance, the stock could continue its upward trajectory if it maintains its current momentum.

Fundamental Analysis

TSM holds a market cap of $660.78 billion, indicative of its status as a major player in the semiconductor industry. The company's earnings per share (EPS) stands at 5.18, yielding a price-to-earnings (PE) ratio of 29.33, which is relatively high and could indicate expectations of robust growth or overvaluation. The next earnings announcement is slated for July 18, 2024, and this event may act as a catalyst for price movement.

Taiwan Semiconductor The recent news highlights significant developments for TSMC. The company's decision not to use ASML’s High NA EUV machines for its A16 node indicates strategic flexibility and cost management. Additionally, the planned start of their European facility's construction in the fourth quarter reflects TSM’s global expansion efforts, which are vital for capturing future growth opportunities.

The DCF valuation of $63.25 per share suggests that TSM is significantly overvalued based on cash flow projections. Analysts' price targets range from $125 to $180, with a consensus target of $157.67, indicating moderate upside potential. The analyst sentiment data shows a strong inclination towards 'buy' with 10 buy ratings and 1 hold.

Intrinsic Value and Long-Term Investment Potential

The substantial deviation between TSM’s current market price and its DCF valuation implies that the stock is trading at a premium, possibly driven by market optimism and growth expectations in the semiconductor sector. TSM’s long-term prospects remain promising, underpinned by its leadership in advanced chip manufacturing and strategic global expansion plans. However, the high PE ratio and overbought technical indicators raise concerns about near-term valuation sustainability.

Overall Evaluation

Considering the technical and fundamental metrics, TSM is categorized as a 'Hold'. The current overbought condition suggests potential short-term volatility, while the high PE ratio indicates that the stock might be overvalued in the near term. However, strong long-term growth prospects and robust market positioning merit retaining the stock in a portfolio, pending further performance analysis post the next earnings report.

Check full Taiwan Semiconductor forecast and analysis here.