On Thursday, BofA Securities updated its outlook on shares of Taiwan Semiconductor Manufacturing Company (2330:TT) (NYSE: TSM), raising the price target to NT$1,400 from NT$1,200, while reiterating a Buy rating on the shares. The adjustment comes after TSMC reported robust third-quarter earnings and provided an optimistic fourth-quarter guidance.
The semiconductor giant's third-quarter earnings per share (EPS) of NT$12.54 surpassed both BofA Securities' and the market's expectations by 6% and 8%, respectively. This performance, along with a positive forward-looking statement on capital expenditures for 2024 and 2025, has reinforced confidence in TSMC's growth trajectory.
TSMC's valuation, which stands at 17 times its projected 2025 earnings, is deemed attractive by the analyst. This assessment is backed by several factors, including the company's advances in artificial intelligence (AI), particularly the ramp-up of Blackwell, improved yields of its N3 technology, and increasing demand for advanced processing nodes. Moreover, anticipated price increases and market share gains are expected to contribute to TSMC's structural earnings growth.
Despite recent concerns about demand fluctuations in the semiconductor industry, BofA Securities maintains its positive stance on TSMC's stock. The firm's outlook is bolstered by TSMC's sustained leadership in the sector and the potential upside of 35% reflected in the new price target.
In other recent news, Taiwan Semiconductor Manufacturing Co. Ltd. reported a significant gross margin surprise in its Q3 2024 earnings, exceeding both the company's own guidance and market expectations. The company's gross margin reached 57.8%, surpassing the guided range of 53.5-55.5%, due to higher utilization rates and cost improvements.
These improvements are linked to progress on the 5/3 nanometer technologies, which are driving the company's growth. Furthermore, Taiwan Semiconductor anticipates a gross margin expansion to 57.0-59.0% in Q4 2024, higher than recent expectations.
UBS has maintained a Buy rating on Taiwan Semiconductor and increased the price target from NT$1,200.00 to NT$1,300.00. The company also reported a 12.8% sequential revenue increase to NT$23.5 billion in its third quarter of 2024, driven by strong demand for 3-nanometer and 5-nanometer technologies in smartphones and AI applications.
Looking ahead to 2025, UBS forecasts that Taiwan Semiconductor's gross margin will rise further to 58.5%, taking into account several factors including a price increase on the N5/3 technologies, an improvement in utilization, and a decrease in N3 dilution. These are the most recent developments concerning Taiwan Semiconductor.
InvestingPro Insights
TSMC's robust financial performance, as highlighted in the article, is further supported by real-time data from InvestingPro. The company's market capitalization stands at an impressive $842.26 billion, reflecting its dominant position in the semiconductor industry. TSMC's revenue growth remains strong, with a 40.07% increase in the most recent quarter, aligning with the positive earnings report mentioned in the article.
InvestingPro Tips shed additional light on TSMC's financial health:
1. TSMC has demonstrated consistent dividend growth, with a 42.34% increase in the last twelve months as of Q2 2024. This supports the company's ability to return value to shareholders while investing in growth initiatives.
2. The company maintains a high return on assets at 16.56%, indicating efficient use of its resources to generate profits.
These insights reinforce BofA Securities' bullish stance on TSMC. The company's strong financial metrics and growth potential in AI and advanced processing nodes justify the increased price target and Buy rating.
InvestingPro offers 15 additional tips for TSMC, providing investors with a comprehensive analysis of the company's prospects and potential risks.
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