TSMC’s US$240 billion rout sees no sign of ending as Goldman, HSBC lower price target amid bleak outlook for chip industry
- At least eight analysts have cut their share-price estimates for the world’s biggest contract semiconductor chip maker this month, according to Bloomberg data
- TSMC and other major peers have fallen out of favour after the US once again tightened its curbs on exports of advanced semiconductors to China
The bearish mood was preceded by a retreat among some of the biggest money managers. BlackRock, which manages about US$8 trillion of assets, sold 51 million TSMC shares in recent regulatory filings, while funds managed by Invesco and JPMorgan Chase also pared their holdings.
TSMC fell 3.6 per cent to NT$397 in Taipei on Monday, after sliding to NT$395 last week, the lowest level since July 2020. Still, the stock has lost a third of its value this year, larger than the 28 per cent drop in the Taiex index.
TSMC is the most valuable constituent of the benchmark gauge, with a commanding 26 per cent weighting. Its third-quarter results beat estimates, but was overshadowed by a decision to cut its 2022 target for capital expenditure by 10 per cent in a sign of weakening demand.
TSMC and other major chip makers have quickly fallen out of favour with traders after the US once again tightened its curbs on exports of semiconductors to China earlier this month. The new restrictions cover exports of some chips used in artificial intelligence and supercomputing as well as sales of semiconductor manufacturing equipment to any Chinese company.
“Historically, a sharp decline in semiconductor sales usually presages a global recession,” strategists at Alpine Macro wrote in an October 17 report. “Longer term, we see the potential for widespread price destruction in the semis sector.”
The Taiwan stock market has also faced the military threat from China, which regards the island as a renegade province, following visits by US politicians and lawmakers. The fate of TSMC is often tied to Taiwan’s relations with Beijing, though the island’s top officials have played down the issue.
“If you understand the ecosystem of TSMC, the comments out there are unrealistic,” Bloomberg reported Chen Ming-tong, director general of Taiwan’s National Security Bureau, as saying last week. “Even if China got a hold of the golden hen, it won’t be able to lay golden eggs.”
TSMC has a consensus 12-month price target of NT$630.45, implying a 52 per cent gain from Friday’s close, according to the estimates of 32 analysts tracked by Bloomberg. Analysts have been lowering their projections for TSMC’s stock price since February, when the consensus peaked at NT$850.53.
To be sure, some analysts are bullish on TSMC when looking at a more distant horizon, arguing the stock is undervalued and product demand will remain strong in the long term. The company is valued at 10.3 times estimated earnings, the cheapest in seven years, according to Bloomberg.
Yet, the stock will be in for more volatility at least in the foreseeable future as escalating geopolitical tensions further undermine confidence, according to Lee at Morningstar.
“Short-term uncertainties over foundry demand will increase, as China is the world’s second-largest cloud computing market, and local cloud service providers may struggle to secure chips for their expansion initiatives,” Lee added. “The new shock may further dampen sentiment in a sector that is already ravaged by weak consumer electronics demand.”