Key Morningstar metrics for Taiwan Semiconductor Manufacturing

  • Fair Value Estimate: $213.00
  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium

What we thought of Taiwan Semiconductor Manufacturing’s earnings

Despite impressive guidance and results, we maintain our fair value estimate for Taiwan Semiconductor Manufacturing TSM at $213 per share, as the firm’s long-term fundamentals are largely unchanged. TSMC’s stock remains attractive, as the company is the go-to foundry for artificial intelligence chips, being the only one with sufficient scale to meet the content growth demand for cutting-edge chips in both AI and other applications.

TSMC anticipates fourth-quarter revenue to grow 11.6% sequentially to TWD 848 billion at the midpoint (12.8% in USD terms to $26.5 billion), bringing 2024 revenue to TWD 2.87 trillion, above our prior full-year estimate of TWD 2.70 trillion, due to the better-than-expected ramp-up of 3nm mobile and AI products. Gross and operating margin guidance is marginally higher sequentially, to 58% and 47.5% at their respective midpoints, well above our 55% gross margin forecast. As a result, we have increased our 2024 revenue and earnings per share projections by 6% and 10%, respectively.

TSMC

Third-quarter results were much better than we anticipated. Revenue came in at TWD 760 billion, 13% higher sequentially. Gross and operating margins improved almost 5 percentage points from the prior quarter to 57.8% and 47.5%, respectively. The stellar numbers come from higher utilization, which we believe is concentrated in 5nm and 7nm processes as AI features drive additional chip content on PCs and smartphones. Debottlenecking efforts also helped during the quarter, enabling more AI chip shipments than projected.

Management said 2025 capital expenditure is likely to be higher than 2024 without providing numbers, in line with our view of a 20% year-on-year increase. Back-end packaging capacity remains tight, echoing the Nvidia NVDA CEO’s view of “insane” demand.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company's future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn more about how to identify companies with an economic moat, read this article by Mark LaMonica.