TSM Stock Analysis: Support Holds Amid Neutral RSI; Earnings Ahead Hold Caution for Investors

Technical Analysis

Taiwan Semiconductor Manufacturing Company Limited (TSM) closed at $169.97 on August 14, 2024, reflecting a decline of $2.37 (-1.38%) from the previous session. The stock has established a support level at $160.28 and faces resistance around $171.20. Currently, the Relative Strength Index (RSI) of 57 indicates that the stock is near neutral, suggesting potential for further upward movement without being overbought yet.

The most recent price performance shows low trading activity with a volume of 11.27 million shares compared to an average of 17.79 million, hinting at possible market indecision. The 50-day moving average (MA) at $169.63 closely mirrors the last close, providing a slight bullish indication.

The Moving Average Convergence Divergence (MACD) currently being negative (-10.17) suggests that bearish momentum persists, although the situation appears to be stabilizing. Given the Average True Range (ATR) of approximately $4.57, traders can expect medium volatility in the near term.

Fundamental Analysis

With a market capitalization of approximately $741.49 billion and an earnings per share (EPS) of $5.18, TSM’s price-to-earnings (P/E) ratio stands at 32.81, indicating a relatively high valuation compared to historical averages. The upcoming earnings announcement on October 17, 2024, will be crucial, as investor sentiment could shift based on results.

The discounted cash flow (DCF) calculation at about $68.53 suggests that the stock may be overvalued at current levels, given its last close. Nevertheless, analysts remain optimistic with a consensus 'Buy' rating and median target price of $200, significantly above the current trading level.

The company significantly benefits from the sustained demand for semiconductor chips, especially tied to the ongoing AI boom. Recent performance highlights a 61% year-to-date increase despite some market volatility.

Predictions

For the next trading day (August 15, 2024), TSM is likely to experience a modest pullback or stabilize around current levels, potentially staying within the range of $167.19 to $171.20, depending on broader market conditions and investor sentiment following recent news regarding semiconductor stocks.

Looking towards the upcoming week, volatility may increase, particularly as anticipation builds for the earnings announcement, which could trigger price movements based on guidance or forecasts shared by TSM’s management.

Intrinsic Value and Long-Term Potential

The intrinsic value indicated by the DCF analysis suggests TSM may be facing a valuation disconnect at present levels. However, the company shows strong long-term investment potential supported by robust demand in the semiconductor space, particularly with AI-related technologies.

Over the long term, TSM stands to benefit from supply chain enhancements and ongoing partnerships within technological advancements, solidifying its market leader position in semiconductor manufacturing.

Overall Evaluation

Given the analysis above, TSM is categorized as a 'Hold' candidate. While its long-term prospects in the semiconductor market remain favorable due to strong demand, current pricing and valuation metrics suggest that immediate entry could expose investors to downside risk around earnings volatility. The absence of compelling bullish signals in the short term further solidifies this position.