UBS has maintained its Buy rating on Taiwan Semiconductor Manufacturing Co. Ltd. (2330: TT) (NYSE: TSM) and increased the price target from NT$1,200.00 to NT$1,300.00.
The adjustment comes after Taiwan Semiconductor reported a significant gross margin (GM) surprise in its Q3 2024 earnings, which exceeded the company's own guidance as well as market expectations.
Taiwan Semiconductor's gross margin for Q3 2024 reached 57.8%, surpassing the guided range of 53.5-55.5%. The company's management has indicated that this increase is a result of higher utilization rates and cost improvements.
These factors suggest progress on the 5/3 nanometer technologies, which are believed to be driving the company's growth.
Looking ahead, the company has provided guidance for Q4 2024, anticipating a gross margin expansion to 57.0-59.0%. This projection is higher than the recent expectations of 55%. The company's performance has been buoyed by the advanced technologies, which are contributing to its financial metrics.
For the year 2025, UBS now forecasts that Taiwan Semiconductor's gross margin will rise further to 58.5%. This projection takes into account several factors: a 5-10% price increase on the N5/3 technologies, an improvement in utilization from 78% in 2024 to 86% in 2025, and a decrease in N3 dilution from approximately 3% in 2024 to 1.5% or less in 2025. These improvements are expected to more than offset the dilution from overseas fabs and cost inflation.
In other recent news, Taiwan Semiconductor Manufacturing Company (TSMC) reported a 12.8% sequential revenue increase to NT$23.5 billion in its third quarter of 2024. This rise was driven by strong demand for 3-nanometer and 5-nanometer technologies in smartphones and AI applications. Furthermore, the company's gross margin rose to 57.8%, surpassing its own forecast range of 53.5-55.5%.
UBS Analyst Randy Abrams has raised the price target for TSMC to NT$1,300, maintaining a 'Buy' rating on the stock. This revision follows TSMC's robust third-quarter earnings and the expectation of a steady gross margin in the fourth quarter.
TSMC anticipates its Q4 2024 revenue to be between $26.1 billion and $26.9 billion, reflecting a 13% sequential increase. The company's 2024 capital expenditures are projected to exceed $30 billion, with a focus on advanced process technologies.
InvestingPro Insights
Taiwan Semiconductor's strong financial performance, as highlighted in the article, is further supported by recent data from InvestingPro. The company's market capitalization stands at an impressive $842.26 billion, reflecting its dominant position in the semiconductor industry. TSM's revenue growth of 40.07% in Q2 2024 aligns with the positive outlook mentioned in the article, particularly regarding the company's advanced technologies driving growth.
The gross profit margin of 53.36% for the last twelve months as of Q2 2024, while slightly lower than the recent Q3 2024 figure of 57.8% mentioned in the article, still demonstrates TSM's robust profitability. This is further emphasized by the operating income margin of 42.04% over the same period.
InvestingPro Tips highlight that TSM has raised its dividend for 3 consecutive years, with a significant dividend growth of 42.34% in the last twelve months as of Q2 2024. This trend aligns with the company's strong financial performance and could be attractive to investors seeking both growth and income.
For readers interested in a more comprehensive analysis, InvestingPro offers 18 additional tips for Taiwan Semiconductor, providing deeper insights into the company's financial health and market position.
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