- Weak revenues expected to reverse in 2023 second half
- New N3 and N5 product nodes will help turn corner
- One analyst ups price target from $76 to $126
Analysts have revised their forecast and valuation metrics for Taiwan Semiconductor Manufacturing Company (TSM:NYSE), popularly known as TSMC, and calculated that the shares could rally up to 43%.
The new analysis comes from Philadelphia-based quantitative researcher Susquehanna despite TSMC’s weak March sales report, noting that the worst case is dialled into the chip maker’s estimates and investor expectations. Susquehanna raised its target price for the stock from $76 to $126, implying that the stock is 43% undervalued.
TSMC , the world's largest contract chipmaker and a major Apple (AAPL:NASDAQ) supplier, is likely to report net profit for the January to March quarter of T$192.5 billion, or about $6.3 billion), down from T$202.7 billion a year earlier, according to the average of 21 analysts polled by Reuters.
WHY ARE TSMC’S PROSPECTS IMPROVING
According to Susquehanna analysts, the introduction of new products has led to a better outlook for revenues than previously expected, particularly through the second half of 2023. This comes after a significant decline in wafer shipments and revenues during 2022 and into the first half of this year.
The analysts also believe utilisation rates will bounce back later this year, following an anticipated decline of more than 30 points in the first half.
This is anticipated to result in a faster recovery of quarterly EPS (earnings per share) compared to revenues, Susquehanna says, with the trend expected to gain momentum into 2024 as new products are introduced at N3/5 nodes (three and five nanometre chips).
THIRD QUARTER PICK-UP EXPECTED
‘Looking ahead into the second quarter, which is typically a slow season, TSMC’s sales on a quarterly basis will be under pressure from inventory adjustments as major clients cut back on orders,’ said Alex Huang, who manages about T$5 billion for Capital Investment Trust.
But momentum may pick up as early as the third quarter, he added, corresponding with the improved outlooks for that quarter projected by Apple, Nvidia (NVDA:NASDSAQ) and Advanced Micro Devices (AMD:NASDAQ), some of TSMC’s biggest customers.
TSMC’s New York-listed shares closed overnight at $87.99.
