Sticking With This TSM Price Target After Earnings Drive Major Gains
Taiwan Semiconductor boosted the entire sector with strong earnings that signal bullish things ahead.
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On Thursday morning, Taiwan Semiconductor (TSM) released the firm's fourth financial results. They were solid. Very solid. Did someone say, "margin expansion"? For the purposes of this article, we are referring to the TSM ADRs that trade here in the U.S., not the ordinary shares that are listed in Taiwan, and we will communicate as much as possible in U.S. dollar terms, not in new Taiwan dollar terms.
For the period, the firm posted an GAAP EPS of $3.14 on revenue of$33.73 billion. These top- and bottom-line numbers both beat the consensus view. The earnings print beat Wall Street by 16 cents per share and compared very well to $2.12 for the year-ago period. The sales print was good enough for year-over-year growth of 25.5%.
Foundry Landscape
Taiwan Semi's high-performance division now accounts for 55% of revenue generation. This is where the firm manufactures AI and 5G purposes. Chips designated for smartphones accounted for 32% of sales. For the quarter, chips measuring 7 nanometers or less made up 77% of all fabrication revenue, while for the year accounted for 74%. This was up from 69% for all of 2024.
Operations
For the quarter, as revenue expanded 25.5% to $33.731 billion, the cost of that revenue increased to $12.708 billion. That left a gross profit of $21.023 billion. Gross margin improved sharply from 59.5% for the year ago period to 62.3%. Operating income improved to $18.215 billion as operating margin jumped from 49% all the way to 54%. Net income attributable to shareholders landed at $16.307 billion, or 48.3% of total revenue, up from 45.7% for the year-ago comparison.
Victory Lap
Two weeks ago, we wrote to readers ahead of TSM earnings. I wrote, "The firm reports in two weeks. The firm guided towards sales growth of 24% to 25%, but I think the story will be in the margins achieved."
The I went into the chart:
"I see an Inverted head-and-shoulders pattern of bullish reversal/continuance with a $314 pivot," I wrote. "These ADRs have retaken their 21-day EMA and 50-day SMA which gets both the swing crowd and the pros aligned. Readers will also note that relative strength is rising, and is better than neutral, but is not yet technically overbought. In addition, all three components of the daily MACD are postured bullishly at this time. I intend to initiate a long position in TSM, with that pivot triggered, once this article is published (so as not to front-run my own material)."
Thank goodness I took that long position. The stock was trading at $315.70 when I wrote that piece. It's still early, but I see the ADRs trading at $344.20 as I work through this piece. A 9% gain in two weeks is, in my opinion, worth it.
The pivot has quite obviously acted as a springboard for the shares. Relative strength remains robust and will pick up momentum on Thursday morning. The daily MACD is postured extremely bullishly and continues to express that sentiment. This is a positive for the entire semiconductor design and semiconductor equipment provider industries.
Taiwan Semiconductor (TSM)
Target Price: $377 (reiteration)
Pivot: $314 (created by pattern)
Add: Not now. Allow for some profit taking.
Panic: Loss of 50-day SMA (currently $297)
At the time of publication, Guilfoyle was long TSM equity.
