TSMC Faces Volatility: Key Support Holds Amid Overbought Signals and Earnings Ahead

Technical Analysis

Taiwan Semiconductor Manufacturing Company Limited (TSM) closed at $177.97 on September 27, 2024, marking a decline of $8.86 or 4.74% from the previous day. The stock has recently experienced volatility, with a 52-week high of $193.47 and a low of $84.95. The current Relative Strength Index (RSI) is at 66, indicating a nearing overbought condition, which suggests potential for a corrective pullback.

The stock's trading price remains above the 50-day moving average of $167.39 and notably above the 200-day moving average of $146.02, indicating a positive longer-term trend. However, the recent price action, including today's decline, raises caution. The 14-day Average True Range (ATR) is $3.33, indicating moderate volatility, while the stop-loss level stands at $171.85, encapsulating immediate downside risk. Key support is identified at $171.87, while resistance is at $184.50.

Moreover, the MACD indicator at 0.57 provides a bullish momentum signal, but traders should be wary due to the proximity to resistance levels and overall market sentiment reflected in recent price movements.

Fundamental Analysis

TSM's earnings per share (EPS) stand at $5.66, translating to a price-to-earnings (PE) ratio of 30.46, which is moderately high relative to historical averages, indicating that the stock may be overvalued at the current price level. A discounted cash flow (DCF) analysis yields an intrinsic value of approximately $71.19, suggesting a significant disconnect from the current trading price.

As the company gears up for its earnings announcement on October 17, 2024, market sentiment may fluctuate. The upcoming dividend on October 9, 2024, with a yield of 0.28%, is marginal and may not substantially affect investor interest.

The consensus among analysts points to a bullish outlook as indicated by the assessments: 10 rated TSM as a 'Buy' and 1 as a 'Hold,' suggesting widespread optimism about the company's growth prospects despite current price fluctuations.

Recent news highlights suggest that TSMC is in a strong position due to its competitive advantages, as evidenced by continued collaborations and technological innovations, particularly in AI and advanced semiconductor packaging technologies. This could signal long-term growth potential as demand for cutting-edge technologies escalates.

Short-term Predictions

For the next trading day (September 30, 2024), the stock is likely to test the critical support level of $171.87. A failure to hold this support would indicate further downside potential, potentially dragging the stock closer to the DCF valuation level. In the upcoming week, if TSM can maintain above this support and the broader tech sector remains buoyant, it might retest the resistance level of $184.50, particularly leading into the earnings announcement.

Long-term Investment Potential

TSM's long-term investment outlook appears solid given its industry-leading position in semiconductor manufacturing, potential for consistent earnings growth, and partnerships that enhance its technological edge. However, given the disparity between market price and DCF value, investors should exercise caution and consider the stock’s valuation relative to expected growth.

Overall Evaluation

The analysis categorizes TSM as a 'Hold' candidate. While the long-term fundamentals remain strong, the current valuation appears inflated relative to its intrinsic value. Investors should monitor the stock closely for potential entry points, particularly if a retracement towards value levels occurs. Continued volatility and the results of the upcoming earnings report will be critical in dictating the near-term stock trajectory.