TSMC Faces Short-Term Volatility Despite Strong Fundamentals and Long-Term Growth Potential

Technical Analysis

Taiwan Semiconductor Manufacturing Company Limited (TSM) closed at $194.05 on November 11, 2024, experiencing a 3.55% decline with a daily trading range between $191.49 and $198.20. At present, the stock faces immediate resistance at $194.68 and finds support at $193.34. The Relative Strength Index (RSI14) stands at 46, indicating the stock is near neutral and not overbought or oversold. The 50-day moving average of $183.12 is above the 200-day moving average of $159.05, suggesting a bullish trend, despite the recent dip. Furthermore, the MACD at 5.14 continues to reflect upward momentum. However, the significant average true range (ATR) of 3.43 indicates potential volatility and price fluctuations.

Fundamental Analysis

TSMC's market capitalization is approximately $848.21 billion, positioning it as a major player in the semiconductor industry. Trading volumes significantly exceeded the average, suggesting heightened investor interest or concern. The price-to-earnings ratio (P/E) of 34.84 is relatively high, indicating that the stock might be priced optimistically compared to its earnings. Earnings per share (EPS) of $5.57 emphasizes its earning prowess, although recent geopolitical influences have impacted sentiment, notably, U.S. restrictions on Chinese AI chip exports causing price impacts. Despite this, continuous improvement in operational metrics and a boost in U.S. operations represent strong fundamentals. TSM's intrinsic value, assessed through the discounted cash flow (DCF) model, is significantly below the current price at $65.90, suggesting that the stock may be overvalued.

Near-Term Prediction

While positive operational indicators and strong tailwinds from the U.S. government support bolster the long-term outlook, restrictions on AI chip sales to China present a short-term headwind and potential downside risk. For the next trading day and week, volatility may persist as investors digest these market and political developments. An oversize volume implies possible continuance of downward pressure, although improved sentiment from U.S. support might mitigate losses.

Intrinsic Value and Long-Term Potential

Given the substantial difference between the current market price and the discounted cash flow analysis, TSM may appear significantly overvalued at present. However, the stock's intrinsic value is influenced by potential geopolitical developments and ongoing expansion in non-China markets, including the United States. With TSM's robust position in the semiconductor space and U.S. factory yields surpassing those in Taiwan, there is long-term growth potential, provided they adapt effectively to evolving chip market geopolitics and regulations.

Overall Stock Evaluation

Despite recent headwinds, TSM maintains a strong industry position and functional fundamentals, indicated by the analyst consensus categorizing the stock as a "Buy," supported by nine buy ratings and one hold. Analysts provide a target consensus of $183.75, with a focus on a target median of $200, asserting some confidence in future upticks. The geopolitical issue of halted AI chip sales to China remains a critical factor for possible volatility.

Evaluating TSM holistically, the stock might currently be a 'Hold' candidate considering its robust industry position and operational strengths, tempered by geopolitical challenges and potential overvaluation. For investors with a greater appetite for risk and a long-term horizon, the 'Buy' considerations for future market stabilizations and growth insights should be weighted carefully, particularly in context with geopolitical risk management and production innovations.