TSMC’s US$100 billion wipeout does not change analysts’ bullish outlook for Taiwan’s semiconductor giant

Despite the recent stock rout for the world’s largest contract chip maker, investors expect TSMC shares to climb 50 per cent over the next year
Chairman Mark Liu has forecast 30 per cent revenue growth this year, and the company occupies an important position in the global supply chain

Taiwan Semiconductor Manufacturing Company (TSMC)

Bloomberg

Published: 10:31am, 10 Jun, 2022

Why you can trust SCMP

The share price slump that’s erased about US$100 billion from the market value of Taiwan Semiconductor Manufacturing Co (TSMC) this year means little to the legion of analysts who see the stock as a screaming buy.

TSMC shares are expected to climb about 50 per cent to a record high 12 months from now, according to sell-side analyst estimates compiled by Bloomberg, as macro headwinds buffeting the sector ease and investors return their focus to the company’s fundamentals.

Fund managers are also starting to view an end in sight to the rout, and chairman Mark Liu’s Wednesday forecast for 30 per cent revenue growth this year bolsters this case.

TSMC says demand for capacity still strong ahead of 3nm chip launch

While the scale of TSMC’s drop is notable, having shed more than a tenth of its share value, it is still about half the fall seen in 2022 in the global semiconductor benchmark index. The company occupies a powerful position in the global technology supply chain as the most advanced maker of chips for giants from Apple Inc to Nvidia Corp.

“Buyers may return as soon as non-fundamental factors disappear,” said Alex Huang, manager of Capital Hi-Tech Fund in Taipei. He sees a prospect of inflationary concerns and the war in Ukraine, which have both weighed on semiconductor makers, changing for the better in the second half of the year.

Being the largest and the most liquid stock on Taiwan’s equity market also made TSMC an easy selling target for some foreign investors, according to Huang. The US$475 billion company accounts for about 27 per cent of Taiwan’s entire equity market value.

“While many worry about a cyclical correction, we forecast share gain and robust pricing which will ensure TSMC grows uninterruptedly this year and also in 2023 and 2024,” Sanford C Bernstein analysts including Mark Li wrote in note earlier this month.

Of the 37 analyst recommendations compiled by Bloomberg, 34 are buys, three are holds and none are sells. The average 12-month price target is NT$816.75 (US$27.60), versus Thursday’s close of NT$541.

06:01

There’s a global semiconductor shortage and this is why it matters

Risk factors

To be sure, investors were blindsided by the pandemic, missed many of warning signals before Russia invaded Ukraine and are divided on the course of inflation – all of which will continue to shape the macro picture for chip makers.

“We think TSMC stock is already factoring in a downturn,” JPMorgan Chase & Co analysts including Gokul Hariharan said in a note Wednesday. “However, the extent of potential downside to 2023 estimates is still unclear,” they said, while maintaining a buy rating.

Others though, are less hesitant in their calls.

Morgan Stanley analysts including Charlie Chan said the current nervousness in the market presents a good opportunity to buy TSMC, whose “future looks secure”.

“We think now is a great time to accumulate,” he wrote in a report late last month, noting the company’s technology leadership.

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