For Immediate Release
Chicago, IL – October 24, 2024 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Taiwan Semiconductor Manufacturing Company Ltd. TSM, Apple Inc AAPL, NVIDIA Corp. NVDA and Intel Corp. INTC.
Here are highlights from Wednesday’s Analyst Blog:
3 Reasons to Buy TSM Stock Besides 54% Q3 Net Profits Surge
Taiwan Semiconductor Manufacturing Company Ltd., or TSMC, known for making the smallest and most power-efficient chips saw its shares surge recently after its latest quarterly profits soared on artificial intelligence (AI) demand.
Its shares are further expected to scale northward primarily due to three major reasons. Let’s look at those and what makes the TSM stock a compelling buy at the moment –
TSMC’s Positive Q3 Results & Outlook Boosts Share Price
In the third quarter, TSMC registered a remarkable 54.2% year-over-year net profit increase to 325.3 New Taiwan dollars ($10.1 billion), surpassing most analysts’ estimates. Net revenues in the July-September quarter came in at $23.5 billion, up 36% annually.
TSMC’s third-quarter revenues largely improved due to the sales of the chipmaker’s advanced semiconductors, or microchips that are 7nm or smaller. TSMC’s 3nm chips accounted for 20% of the third-quarter revenues, while 5nm and 7nm chips accounted for 32% and 17% of sales, respectively.
The cutting-edge 3nm chips are used in Apple Inc’s iPhone and other high-performance computers. TSMC confirmed that revenues will likely improve in the fourth quarter due to increased demand for these advanced chips. TSMC’s CFO Wendell Huang expects the company’s fourth-quarter revenues to be $26.1 billion to $26.9 billion, up 35% annually and 13% sequentially.
TSMC’s third-quarter gross margins were 57.8% compared to 54.3% a year ago. In the fourth quarter, gross margins will remain between 57% and 59% due to increased demand for chips banking on a spike in AI applications.
Following the latest encouraging quarterly results and a promising outlook, TSMC’s shares popped. In reality, TSMC’s shares have gained 90.8% this year.
3 More Reasons TSM Stock Has More Room to Run
TSMC’s shares are set to rise as it has a strong competitive advantage and manages costs efficiently. Moreover, the broader AI industry growth, which shows no signs of a bubble, should drive the TSMC stock.
TSMC enjoys a wide economic moat as its market share is over 50% among contract manufacturers. This helped create barriers to entry and enabled TSMC to build a close rapport with its customers.
Notably, all of NVIDIA Corp.’s data center components are being made by TSMC. Such a competitive edge helped TSMC notch an operating margin of 47.5% in the third quarter, a tell-tale sign that the company was able to keep almost half of its revenues as profits before taxes.
TSMC’s immediate competitors are also struggling. Samsung is currently facing several issues in its memory business, while Intel Corp. is involved in a restructuring process by making its foundry business a subsidiary and is curtailing capital expenditures.
TSMC, meanwhile, can generate profits and manage costs proficiently since its net profit margin is 39.6%, more than the Semiconductor - Circuit Foundry industry’s 39.1%. Any reading above 20% shows that the company has a high margin.
The relentless AI demand is another tailwind for the TSMC stock. Wendell Huang said that AI-related demand for 3nm and 5nm technologies is real and predicted that AI production would continue for many years. He categorically squashed AI bubble concerns (read more: What AI Bubble? NVIDIA & 2 Other Chip Stocks With Strong Price Upside).
Moreover, to meet the demand for AI applications, TSMC has set up three plants in Arizona, and more in Europe and Japan to manufacture its most advanced chips.
TSM Stock to Buy Hand Over Fist
With the TSM stock primed for growth in the years ahead, it’s prudent to invest in the world’s largest manufacturer of advanced chips. Brokers estimate that the TSM stock’s average short-term price target is $216.14, an upside of 7% from the last closing price of $201.95. The highest short-term price target is $250, indicating an upside of 23.8%.
Additionally, the $6.63 Zacks Consensus Estimate for TSMC’s earnings per share is up 14.3% yearly. TSMC, therefore, rightfully has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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