TSM Technical Analysis: Bullish Momentum but Caution Advised

StockInvest.us, 1 month ago

Taiwan Semiconductor Technical Analysis

Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) closed at $157.09 on May 23, 2024, experiencing a modest increase of 0.60%. The stock reached an intraday high of $160.78, marking a new yearly high, but ended slightly below it. The Relative Strength Index (RSI14) stands at 73, indicating that the stock is potentially overbought.

Currently, TSM trades significantly above its 50-day and 200-day Moving Averages, which are $141.64 and $112.54 respectively, suggesting a robust bullish trend. The Moving Average Convergence Divergence (MACD) value of 5.15 further supports the bullish momentum in the stock’s performance.

The Average True Range (ATR) of 2.62 signals moderate volatility. Immediate support is identified at $149.2 but lacks a defined resistance level, considering that it just touched a record high.

Fundamental Analysis

TSM’s market capitalization stands at approximately $715.87 billion, positioning it as a dominant player in the semiconductor space. Despite a relatively modest dividend yield of 0.24%, TSM's recent dividend hike highlights its shareholder value commitment. The company's EPS stands at 5.2, leading to a Price-to-Earnings (PE) ratio of 30.77, showcasing a premium valuation compared to the broader market.

Noteworthy is the upcoming earnings announcement on May 27, 2024, which has the potential to act as a catalyst, either bolstering or testing current market sentiment. Furthermore, the stock sees an average volume of 15.30 million, with the latest volume observed at 4.37 million, suggesting lower trading activity recently.

The intrinsic value calculated using the Discounted Cash Flow (DCF) model is approximately $63.33, indicating that the stock is significantly overvalued based on this metric.

Taiwan Semiconductor Analyst consensus points toward a buy, with 10 analysts recommending a buy and 1 recommending hold. The target price consensus ranges from $125 on the lower end to $180 on the upper end, centering around $168.

Predictive Analysis

Next Trading Day (May 24, 2024): Based on current bullish momentum and recent upward trends, it is plausible for TSM to maintain its current level or possibly edge higher. Nevertheless, caution is advised given the overbought RSI indicator, suggesting potential for minor profit-taking.

Upcoming Week: The forthcoming earnings announcement on May 27, 2024, will be the key driver. Should the earnings outperform expectations, TSM could further ascend past its recent highs. Conversely, any unexpected negative outcomes could lead to a correction, especially given the stock’s stretched valuation based on DCF analysis.

Intrinsic Value and Long-Term Investment Potential

On an intrinsic value basis, TSM trades well above its DCF valuation of $63.33. However, its dominant market position, alignment with AI growth trends, and robust financial health bolster its long-term investment appeal. Potential investors should remain aware of the tension between current market exuberance and intrinsic value considerations.

Overall Evaluation: Hold

TSM demonstrates strong short-term technical indicators and favorable analyst sentiment. However, its high current valuation relative to intrinsic value and overbought technical conditions suggest a more cautious near-term stance. Long-term prospects remain positive, driven by significant industry growth drivers such as AI. Hence, the stock warrants holding while closely monitoring the upcoming earnings report and overall market dynamics.

Check full Taiwan Semiconductor forecast and analysis here.