TSMC defies market pessimists as stock bulls raise target price after Temasek, Buffett’s Berkshire dump stakes
- TSMC has risen since Temasek cut its losses in the third quarter last year, and climbed further after Buffett’s Berkshire slashed the bulk of its US$4.1 billion bet
- Analysts at Goldman and Daiwa like the stock as excess inventory depletes over time and the chip maker diversifies its manufacturing facilities
Taiwan Semiconductor Manufacturing Co is confounding market pessimists, as the stock added more than US$38 billion in market value this year. Temasek Holdings of Singapore and Warren Buffett’s Berkshire Hathaway may be rueing the decision to cut their stakes last year.
Some of Wall Street’s investment banks have maintained their bullish views on the world’s biggest semiconductor contract manufacturer and the biggest member of the Taiex Index. Thirty-nine of the 41 analysts who track the stock recommended a buy, according to Bloomberg data.
They have also raised the consensus 12-month price target by 3.3 per cent this year to NT$638.78, implying a 29 per cent upside from Thursday’s closing price of NT$493.50. TSMC jumped 1.3 per cent to NT$500 at 10.45am local time in Taipei on Friday.
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The stock has risen more than 17 per cent since September 30 after Temasek cut its losses, and by about 11 per cent since December 31 when Berkshire slashed the bulk of its stake soon after its US$4.1 billion bet on the chipmaker, according to US regulatory filings.
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“We like the stock as we believe the company’s solid technology leadership and execution make it better-positioned than peers to capture the industry’s long-term structural growth,” Goldman Sachs analyst Bruce Lu said in a report. TSMC could benefit particularly in areas such as 5G, artificial intelligence and electric vehicles, he added.
The upside may take time to come to fruition, though, following a weak earnings report and guidance earlier this month. Net profit rose 2 per cent in the March quarter, the slowest in three years. Revenue is likely to decline this year, versus an earlier forecast for a slight growth, it warned.
Sales will continue to shrink in the second quarter due to high inventory, and will only “rebalance to a more healthy level” in the third quarter, chief financial officer Wendell Huang said in a call on April 20. The industry slowdown could last for another quarter or two, analysts said.
TSMC’s prospects are also clouded by geopolitical factors, given the heightened cross-strait tensions. Buffett cited that as “a consideration” in its decision to dump 86 per cent of its bet in the fourth quarter last year, he told the Nikkei newspaper in an interview in Tokyo earlier this month. TSMC, which owns facilities in mainland China, is often caught in the middle of the US-China tech rivalry.
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Still, TSMC shares have declined 5.7 per cent so far this month in Taipei, trimming this year’s advance to about 11.5 per cent, as the euphoria surrounding the race to compete with ChatGPT cooled. The Taiex fell 2 per cent in April but rose 10 per cent since the start of the year.
Rick Hsu and Fion Chu at Daiwa Capital Markets in Taipei said TSMC’s earnings are still “intact” and the chip maker’s views do not harm the cyclical recovery in the second half as the inventory situation improves over time. The firm’s capital expenditure plans suggest semiconductor demand will start picking up later this year.
“TSMC remains one of our 2023 top picks in the tech space,” they added in a report on April 20. “TSMC has seen positive signs from generative AI to help accelerate the demand megatrend.”
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Goldman’s Lu said he is not too worried about the geopolitical overhang. TSMC’s diversification programme could provide a hedge, he added, after it unveiled plans to build factories in the US and Japan, and held talks for a new plant in Germany.
“We believe its new strategy focused on overseas expansion will help to improve the sentiment around geopolitical concerns and to support its share price performance,” Lu said in his report on April 20.
That could be music to global funds such as Lone Pine Assets, Millennium Management and Citadel Advisors. They were among the most aggressive investors in lapping up more TSMC shares in the final quarter of 2022, according to their latest available 13F regulatory filings in the US.
