TSM Semiconductor Earnings a Breath of Fresh Air for US Big Tech's 2024 Outlook

Taiwan Semiconductor Manufacturing (NYSE:TSM), the Taiwan-based chipmaker, has announced quarterly net profit figures surpassing market expectations in its Q4 financial results unveiled today.

TSM, the world's largest contract chipmaker and a supplier to Apple (NASDAQ:AAPL) and Nvidia (NASDAQ:NVDA), reported a Q4 net profit of $7.6 billion, marking a 19% year-on-year decrease.

The decline in profit, attributed to global economic challenges reducing demand in the chip sector, still exceeded the consensus profit expectation of $7.1 billion.

Taiwan Semiconductor's Earnings Recovered by 2023's End

The company's revenue for the fourth quarter of 2023 reached $19.62 billion, reflecting a 13.6% increase compared to the third quarter, despite a 1.5% year-on-year decline.

Consequently, quarterly earnings, which experienced a downturn in Q2 and Q3, showed signs of recovery by the year's end, signaling a promising development for 2024 operations.

Source: InvestingPro

TSM Vice President and Chief Financial Officer Wendell Huang underlined that Q4 activities were supported by the industry-leading 2-nanometer technology.

Huang also shared his expectations for 2024, saying that while the company may be affected by smartphone seasonality in the first quarter, he thinks this effect will be offset by the continued demand for high-performance computing.

Following Q4 results, the company's gross margin was 53%, operating margin was 41.6% and net margin was 38.2%, to maintain these margins in the first quarter of 2024.

TSM executives also expect revenue of $18 to $18.8 billion for the first quarter. While this expectation remains in line with InvestingPro estimates, analysts have a revenue forecast of $18.1 billion for the first quarter, down close to 10%.

In the other quarters of 2024, revenue is expected to increase gradually. Ultimately, annual revenue guidance for TMSC at the end of 2024 is now estimated at $82.8 billion, up close to 18%.

Source: InvestingPro

Stating that it had a challenging 2023, company officials say that TSM has plans to expand its global production for the coming periods.

Accordingly, factory construction in Germany is expected to start towards the end of the year. The obstacles for the company are the chip dispute between the US and China, an uncontrollable risk along with uncertainty in the industry.

Still, the company has a healthy growth forecast for 2024. Moreover, last quarter's results have revived hopes that the momentum in the chip market is turning upwards, given TSM's leading position.

Among the plans for the coming years, one development that will be carefully followed is TSM's plan to start mass production of 2nm chips in 2025 for Apple, one of its biggest customers.

The earnings report also noted that TSM is actively advancing its 2nm process node, with the first batch of equipment scheduled to enter the fab in April 2024.

Source: InvestingPro

When we check the overall status of the company on InvestingPro, it can be seen that its financial health is currently labeled with very good performance.

TSM, which stands out with its profitability items, continues to earn its investors by increasing its dividend for 3 years in a row.

The company's 53% gross profit margin in the last year is also a positive factor.

In addition, the fact that its cash flow continues to be healthy and is at a level to cover interest expenses is another positive factor that gives confidence to investors in a period of rising costs.

Could the Stock Continue to Rally?

Although the recovery that started in the last months of 2022 was supported by the rapid growth in the artificial intelligence sector in 2023.

The problems between Taiwan and China were a factor hindering growth, while the share price has not yet reached the peak levels of 2021.

This year, however, we may see the effects of vertical growth in the AI sector being felt more. This allows some investment firms to maintain their positive outlook for TSM shares despite geopolitical risks.

For the coming periods, the continuing increase in sales, positive outlook in gross profit staying intact, operating profit and net profit margins, and accelerating capital expenditures should continue to fuel the stock's recovery.

In addition, TSM CEO C.C. Wei believes that despite the challenges of 2023, TSM is well-positioned to meet the need for high-performance computing power with the rapid emergence of artificial intelligence applications.

Although the TSM share maintained its upward trend throughout 2023, it had fluctuating price movements within a wide band.

Based on the 2022 downtrend; We can mention that the share price started the year positively by turning the $ 100 resistance into support.

For the continuation of the trend, TSM has a resistance of 110 dollars, which corresponds to Fib 0.618. This price level is also a resistance at the middle line of the rising channel.

If this resistance line is crossed, $123 and then the last peak at $140 could be on the agenda in the first half of the year.

In the negative scenario, as long as the TSM price stays below the $110 level, we may see increased selling pressure. This could trigger a pullback towards the $ 90 levels.

However, TSM's continuation of its healthy growth target this year, along with the positive outlook in the industry, will contribute to the positive pricing of the stock

Accordingly, we can see that the direction for the share price may continue upwards this year.

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Disclaimer: Our author does not own any of these shares. This content, which is prepared for purely educational purposes, cannot be considered as investment advice.