Sign InTSMC Seeks to Break $201 Resistance Amid Overvaluation Concerns and AI Sector Demand
Summary
On October 23, 2024, Taiwan Semiconductor Manufacturing Company's stock closed at $200.86, nearing resistance levels while reflecting a strong upward trend, yet concerns overvaluation amid high market expectations and potential geopolitical risks categorize it as a 'Hold' in the short term.
Technical Analysis
Taiwan Semiconductor Manufacturing Company Limited (TSM) closed at $200.86 on October 23, 2024, marking a 1.20% increase from the previous session. The stock is trading very close to resistance at $201.95, a level that could potentially be tested in the next session. TSM is significantly above both its 50-day and 200-day moving averages ($177.10 and $153.77, respectively), indicating a strong upward trend. The Relative Strength Index (RSI14) registers at 71, suggesting that the stock is in overbought territory. This typically aligns with potential short-term price corrections, although recent positive momentum could still push prices higher before such a correction occurs. The Average True Range (ATR) of 3.17 points to moderate volatility.
Fundamental Analysis
From a fundamental standpoint, TSM's price-to-earnings (PE) ratio is 35.39, resonating with market enthusiasm but also signaling high expectations for future earnings. The trailing earnings per share (EPS) of $5.62 gives grounds for this optimism. Despite a dividend yield of 0.24%, income may not be a predominant factor for current investors. The news reflects robust demand within the AI sector, a key driving force considering TSMC's pivotal role in supplying chips to industry leaders like Nvidia. However, geopolitical concerns, particularly in relation to US-China tensions, could impact future operations and sentiment.
Assessment of Intrinsic Value and Long-term Potential
The discounted cash flow (DCF) analysis suggests an intrinsic value of $66.16, significantly lower than the current trading price, indicating overvaluation based on this metric. Analysts exhibit a 'Buy' consensus, reflected in a target median price of $200, which closely matches the current trading price, anchoring expectations of continued performance at these levels. Long-term potential remains promising given TSM's technological edge and market position in the AI and semiconductor markets, notwithstanding potential geopolitical risks.
Overall Evaluation and Outlook
For the next trading day, TSM may test and potentially surpass the $201.95 resistance level, driven by positive sentiment and solid earnings reports. Over the upcoming week, traders should watch for any consolidation around the $200 level, especially considering the overbought RSI. Longer-term investors might see these levels as an opportunity to 'Hold' rather than buy more, given currently overvalued DCF assessments against robust long-term sector demand. Considering these factors, TSM is categorized as a 'Hold' candidate. This reflects strong market positioning weakened by potential overvaluation and geopolitical instability concerns, balanced by robust operational performance and sector leadership.
