TSMC Technical and Fundamentals Analysis: Potential Overvaluation but Strong Growth Outlook

Technical Analysis

Taiwan Semiconductor Manufacturing Company Limited (TSM) closed at $179.69 on June 18, 2024, exhibiting a day-over-day change of $2.45 or 1.38%. The stock reached a high of $184.86, which is also its 52-week high, and a low of $178.99. The stock's relative strength index (RSI14) stands at 79, indicating that it is currently overbought. The 50-day moving average is $150.03, and the 200-day moving average is $118.55, suggesting a strong upward trend. The Moving Average Convergence Divergence (MACD) for three months is 5.43, implying bullish momentum. The average true range (ATR) is 2.91, highlighting the stock's volatility.

The support level is at $162.92, while no clear resistance is identified, but the recent high of $184.86 could serve as a psychological resistance. The stock's volume was 26.90 million, significantly higher than its average volume of 14.06 million, indicating strong interest and activity.

Fundamental Analysis

TSMC boasts a market capitalization of $752.88 billion, driven by its earnings per share (EPS) of $5.21 and a price-to-earnings (PE) ratio of 34.49. The company is set to announce its earnings on July 18, 2024. The upcoming dividend is slated for July 11, 2024, yielding 0.25%.

TSM's recent financial performance has been robust, with Q1 2024 earnings per share of $1.38 exceeding estimates by 4.51% and revenues of $18.87 billion surpassing forecasts by 4.77%. TSMC's dominant market position and expansion plans further bolster its outlook. With a market share of 61%, TSMC outpaces competitors like Samsung, which holds an 11.3% market share.

The stock's intrinsic value based on discounted cash flow (DCF) is calculated at $65.48, which is significantly lower than the current trading price, indicating potential overvaluation in the short term. However, with bullish targets from financial analysts, the target high is $200 and the target consensus is $164.33.

Short-Term Performance Prediction

For the next trading day (June 20, 2024), given the overbought RSI and the recent high-volume surge, the stock might face some resistance near its all-time high of $184.86. A minor pullback or consolidation could occur as traders might lock in profits.

Over the upcoming week, the trend may stay positive given the strong momentum indicators, but caution is advised due to the high RSI. Short-term traders must watch for any signs of reversal or consolidation.

Intrinsic Value and Long-Term Investment Potential

Despite the current overvaluation based on DCF, TSMC's long-term prospects remain robust. The firm's substantial market share and ongoing innovations position it well to capitalize on the expanding semiconductor market, which is forecasted to reach about $1.14 trillion by 2033. Future earnings announcements and dividend payouts add to the stock's attractiveness for long-term investors.

Overall Evaluation

Based on the comprehensive analysis, TSMC presents a mixed outlook. The stock is categorized as a 'Hold' candidate. This assessment is based on the following:

- Strong upward momentum but a high RSI indicating potential overbought conditions. - Robust market position and financial performance, but the current price exceeds intrinsic value. - Positive long-term growth prospects, underpinned by market dominance and expansion plans.

Investors may consider monitoring the stock for any pullbacks or strategic entry points, especially with the upcoming earnings announcement likely to provide further insights into TSMC's operational performance.