Taiwan Semiconductor Manufacturing Company (TSMC) reported its Q3 earnings on Thursday, surpassing market expectations and leading to a 4% surge in its stock price. The company's earnings rose by 8%, propelled by stronger gross margins and higher utilization rates. According to InvestingPro data, TSMC's gross profit margin for the last twelve months has been an impressive 58.63%, contributing to an operating income of 34292.72M USD. The positive results were achieved despite a challenging chip market environment characterized by a weak macroeconomy and slow recovery in China, offset to some degree by early signs of stability in PC and phone markets.
Bank of America has increased its earnings estimates for TSMC due to the company's AI potential and an attractive valuation at 13.5 times its estimated 2024 earnings. InvestingPro's data shows TSMC's current P/E ratio at 14.02, which is considered low relative to its near-term earnings growth, one of the InvestingPro Tips for TSMC. TSMC's Q4 revenue guidance also exceeded expectations, driven by advances in its 3-nanometer technology. The company's revenue growth over the last twelve months was 18.64%, despite a quarterly decrease of 9.98%.
The semiconductor manufacturer, under the leadership of CEO C.C. Wei, witnessed a surge in demand for AI semiconductors over the last quarter, particularly from Nvidia (NASDAQ:NVDA), TSMC's principal client. In response to this rising demand, TSMC aims to double its chip-on-wafer-on-substrate (CoWoS) advanced chip-packaging capacity by 2024, a crucial component for producing Nvidia's top-tier AI chips.
Despite anticipated U.S. restrictions on Chinese exports potentially limiting the sale of lower-performance AI chips to China, TSMC expects limited impact and has adjusted its capital expenditure plan to $32B. Analysts argue that such restrictions were foreseeable as AI chip technology evolves, leading to a widening legal sales gap between what is allowed to be sold in China and the rest of the world.
Analysts led by Brad Lin are optimistic about a 2024 recovery as inventory digestion nears completion, rush orders increase, and PC/smartphone demand stabilizes. Susquehanna's Mehdi Hosseini and Kenneth Wu rate TSMC as Positive, seeing it as an undervalued high-quality name. They predict that TSMC will continue benefiting from the semi-cycle bottoming, no-share shift, limited competition threats, and the ramp of new products into H1 2024. This aligns with InvestingPro Tips, which highlights TSMC's consistent increase in earnings per share and its position as a prominent player in the Semiconductors and semiconductor Equipment industry. For more insights like these, consider checking InvestingPro's pricing for access to more than 20 additional tips for TSMC.
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