Taiwan Semiconductor Exceeds Expectations: A Beacon for Investors Amid AI Boom
Taiwan Semiconductor (TSM) reported quarterly earnings this morning and did not disappoint shareholders. Earnings came in 8.9% above analysts’ expectations and showed a 54.2% year-over-year (YoY) increase, while revenue exceeded estimates by 1.3% and grew an impressive 39% YoY.
Management offered encouraging comments as well, with Wendell Huang, Senior VP and Chief Financial Officer, stating, “Our business in the third quarter was supported by strong smartphone and AI-related demand for our industry-leading 3nm and 5nm technologies.” He added, “Moving into the fourth quarter of 2024, we expect our business to continue to be supported by strong demand for our leading-edge process technologies.”
Taiwan Semiconductor’s stock has performed remarkably well this year, effectively doubling in value within the past ten months. With Nvidia (NVDA) and Apple (AAPL) as two of its largest customers, the semiconductor manufacturer has benefited from smartphone growth over the last decade and rising demand for artificial intelligence solutions. Taiwan Semiconductor also holds a Zacks Rank #1 (Strong Buy) and is in the Top 1% (1 out of 250) of the Zacks Industry Rank, enhancing positive expectations for the stock.
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Could TSM’s Earnings Spark AI Investment Renewals?
Artificial intelligence has been a driving force behind the stock market surge over the past two years, leading traders to seek new indicators of its longevity. Earlier this week, ASML Holdings (ASML) reported disappointing earnings, negatively impacting semiconductor giants like Nvidia and Broadcom. Many speculated that this could signal the end of the AI boom.
However, Taiwan Semiconductor’s report may have rekindled optimism in the AI sector. Both Taiwan Semiconductor and Nvidia have emerged as key players in this technological revolution, though trading in their stocks and the broader tech sector has appeared sluggish since summer.
With TSM and Nvidia reaching new all-time highs again, it seems the momentum is returning.
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TSM and NVDA Maintain Reasonable Valuations
It is also noteworthy that both Taiwan Semiconductor and Nvidia are currently trading at reasonable valuations, alongside strong earnings growth forecasts.
TSM is trading at 29.1x forward earnings, which is above its five-year median of 21.3x. Though higher than historical norms, when adjusted for growth, this valuation appears more acceptable. Analysts project earnings to grow at an impressive rate of 26.5% annually over the next three to five years.
On the other hand, NVDA is trading at a one-year forward earnings multiple of 51.2x, which may seem excessive but remains below its five-year median of 55.7x. Additionally, analysts forecast earnings will climb by 41.7% annually over the next three to five years, justifying its high earnings multiple.
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Is It Time to Invest in Taiwan Semiconductor?
Taiwan Semiconductor’s strong earnings results, paired with optimistic guidance, indicate robust growth for the company as it capitalizes on both AI and smartphone demand. The report has also rejuvenated investor confidence in the broader AI market, countering recent worries about its sustainability following ASML’s earnings miss.
Overall, TSM represents a compelling investment opportunity for those who trust in the long-term demand for semiconductors and the promise of AI. With its recent earnings success and signs of an AI resurgence, the stock’s potential for growth seems promising.
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