Taiwan Semiconductor's Profits Rise Amid AI Surge, Yet Cautious Outlook Weighs on Shares
Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest semiconductor manufacturer, saw its shares dip by 3.1% in mid-morning trading on Thursday, despite posting strong first-quarter earnings. The decline, down to a somber outlook amidst the softening smartphone and PC markets, has cast a shadow over its recent fiscal achievements.
TSMC, riding high on the AI boom, has witnessed its stock soar, embedding high expectations into its market valuation. The first-quarter results, surpassing Wall Street's predictions, exhibited a revenue increase of 16.5% in local currency and 12.9% in dollars, reaching $18.87 billion—above the anticipated $18.4 billion. However, gross margin fell from 56.3% to 53.1%, and operating margin also saw a reduction, from 45.5% to 42%.
A significant shift toward advanced technologies, with 5-nanometer and 3nm wafers constituting 46% of its revenue, underscored TSMC's leading edge in the sector. High-performance computing (HPC), encompassing artificial intelligence (AI), accounted for a robust demand segment. CFO Wendell Huang noted impacts from "smartphone seasonality", slightly mitigated by continuing HPC-related demand. He forecasted the smartphone market's sluggishness extending into the second quarter, albeit with sustained strong demand for its cutting-edge 3nm and 5nm chips.
Looking ahead, TSMC anticipates second-quarter revenue to range between $19.6 billion and $20.4 billion, with projections beating the consensus at $19.3 billion and signaling a 28% increase at the midpoint. The forecasted gross margin stands at 51% to 53%, and the operating margin is expected to be between 40% to 42%, hinting at a slight dip in profitability from the first quarter.
Despite these ostensibly robust figures and a particularly bullish forecast for revenue acceleration, the stock's decline reflects market reactions to this year's hefty gains and the lingering concerns over the smartphone sector's weaknesses. Nevertheless, the outlook for TSMC remains optimistic, particularly with the burgeoning demand for AI technologies suggesting a luminous future for the semiconductor titan.
Analyst comment
Positive news:
– Taiwan Semiconductor Manufacturing Company (TSMC) posted strong first-quarter earnings, surpassing Wall Street predictions.
– TSMC witnessed a revenue increase of 16.5% in local currency and 12.9% in dollars.
– TSMC’s leading edge in advanced technologies, especially in artificial intelligence (AI), underscores its market position.
– TSMC anticipates a revenue increase of up to 28% in the second quarter.
Negative news:
– TSMC’s shares dipped by 3.1% due to a cautious outlook amidst the softening smartphone and PC markets.
– Gross margin and operating margin saw reductions.
Neutral news:
– TSMC’s profitability is expected to slightly dip in the second quarter.
– Market reactions to TSMC’s hefty gains and concerns over the smartphone sector’s weaknesses influenced the stock’s decline.
As an analyst, it is expected that TSMC’s market will experience some short-term volatility due to cautious market sentiment. However, the strong demand for AI technologies suggests a positive outlook and potential growth for TSMC in the long term.
