Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) US$420 billion equity rally this year would get a valuation test this week when it reports earnings, with analysts expecting the chipmaker to raise full-year sales forecasts.
The world’s biggest contract chipmaker would probably report a 29 percent increase in second-quarter net income on Thursday, according to the median estimate of analysts surveyed by Bloomberg.
More importantly, analysts from JPMorgan Chase & Co to Morgan Stanley expect it to also raise its full-year sales guidance, justifying another round of valuation expansion.
Photo: Bloomberg
Just like Nvidia Corp, TSMC has become a favorite artificial intelligence (AI)-bet for investors with few other competitors able to duplicate its cutting-edge technology.
Analysts have been playing catchup in valuation and price targets, with the company surging to hit a US$1 trillion market capitalization in the US earlier last week.
“Investors realized that TSMC is the ‘pick and shovel’ play on the AI theme,” said Jian Shi Cortesi, a portfolio manager at Gam Investment Management, whose biggest fund has the stock as its top holding.
“In my view, the AI demand can sustain for at least the next few quarters, as the demand for AI chips is currently showing no signs of slowing down,” Cortesi said.
The sole supplier of Nvidia and Apple Inc’s most advanced chips had previously guided for full-year revenue to grow by low-to-mid 20 percent. That is increasingly seen as too cautious, especially after its sales beat for the second quarter.
On Wednesday last week, TSMC reported sales in the second quarter jumped 40 percent year-on-year to NT$673.5 billion, compared with the average forecasts for a 36 percent rise. That is helping to drive expectations among investors.
Investors would be scrutinizing TSMC’s tone at the earnings call for further clues on the recovery in the chip market and AI demand trends. The AI chip orders have helped make up for lackluster smartphone sales, which are only just recovering from a slump.
A pick up in demand for high-end smartphones and product upgrades in high-performance computing might lead to a price hike of the more advanced semiconductors. JPMorgan estimated that TSMC might raise prices by 3 percent to 6 percent for various customers for its most advanced chips.
Still, there are signs that some have grown uneasy with its valuation. Foreign investors were net selling the shares for five consecutive sessions through Thursday, data from the Taiwan Stock Exchange showed.
TSMC’s market capitalization now far exceeds the combined size of all the Latin American companies on MSCI Inc’s emerging markets benchmark that is tracked by millions of dollars in global funds, according to Bloomberg calculations.
“Right now, everything is in shortage along the AI supply chain,” said Robert Cheng (鄭勝榮), a Taipei-based analyst at Bank of America. “Taiwan semiconductor stocks’ valuation is not high. Share prices have gone up a lot, but they have earnings to support.”
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