TSMC Surges 9.79% on Strong Earnings Amidst AI Demand; Analysts Recommend 'Hold' Amid Overvaluation

Technical Analysis

Taiwan Semiconductor Manufacturing Company Limited (TSM) experienced a significant price increase of 9.79% on October 17, 2024, closing at $205.84. The stock reached a new 52-week high at $212.60, indicating a strong upward momentum. A substantial volume spike at 61.79 million, far exceeding the 15.24 million average volume, suggests heightened investor interest. The RSI14 at 77 indicates an overbought condition, typically a precursor to potential price corrections. The 50 and 200-day moving averages at $173.48 and $151.24, respectively, show a robust bullish trend. The MACD indicates further bullish potential as it rises above the signal line. However, traders should note the ATR of 3.27, which reflects increased volatility. Immediate support is at $171.87, with no clearly defined resistance above the current levels.

Fundamental Analysis

TSMC's fundamentals are strong, bolstered by positive earnings news and growth in lucrative markets such as AI server processors. The recent earnings announcement revealed a staggering 54% profit surge, attributed to advancements in its 3nm and 5nm technology processes and robust AI demand. Revenue growth of 39% was noted in Q3 FY24, driven by server AI processors. The forward P/E ratio of 36.69, alongside a moderate dividend yield of 0.24%, reflects robust growth expectations. TSMC’s advanced node technologies, including future 2nm and A16 processes, are positioned to capture significant market share and meet demand from key clients like Apple.

Intrinsic Value and Long-Term Potential

The stock's DCF valuation at $67.83 suggests a significant overvaluation relative to its current trading price. Despite this, the growth prospects driven by AI and advanced chip processes imply that TSMC has substantial intrinsic growth potential, particularly as the semiconductor market experiences robust expansion. Industry analysts forecast a one-year target price of $240, indicating confidence in TSMC's trajectory over the long term.

Short-Term Predictions

In the short term, given the strong earnings performance and upbeat forecasts, TSM's stock could maintain its upward momentum into the next trading day, Oct 18, 2024. However, considering its overbought RSI and recent sharp gains, some profit-taking is likely during the week, potentially leading to short-term consolidation around current levels before further gains.

Overall Evaluation: Hold

The stock’s recent price surge, driven by outstanding earnings results and optimistic forecasts, justifies a ‘Hold’ classification. While the current valuation appears stretched when compared to the DCF, the company's strategic positioning in the AI and advanced semiconductor markets supports future growth. Investors should consider maintaining positions, monitoring for potential corrections due to overbought conditions, and reassessing upon price stabilization.