On Thursday, Bernstein SocGen Group increased its price target on Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) shares to $200.00, up from the previous $150.00, while maintaining an Outperform rating on the stock.
The revision reflects expectations for the company's revenue and earnings per share (EPS) to outperform its 2024 guidance, driven by high demand in high-end phones and advanced nodes.
The firm anticipates a 25% increase in TSMC's full-year USD revenue and a 28% rise in EPS for 2024. This surge is attributed to several factors, including full capacity utilization at N3 and N5 nodes and an unexpected boost from artificial intelligence (AI) in smartphones.
Additionally, a potential price hike, the earlier launch of Lunar Lake, and increased demand for the company's Chip on Wafer on Substrate (CoWoS) technology are expected to contribute to a 26% EPS growth in 2026.
The analyst notes that the scarcity of CoWoS is likely to lead to more packaging and wafer revenue as capacity expands. Furthermore, the launch of Lunar Lake three months ahead of schedule is projected to increase demand for N3 and N6 nodes, while a favorable mix shift in product offerings and customer base could support a price increase. These developments are anticipated to result in a 20% revenue boost in 2025 and further EPS growth due to N3 technology becoming margin accretive.
Despite a potential decrease in outsourcing from Intel (NASDAQ:INTC), TSMC is expected to sustain a mid-teens percentage EPS growth into 2026, supported by the adoption of N2 by AMD (NASDAQ:AMD) as an additional early user beyond Apple (NASDAQ:AAPL). The report also mentions ongoing plans for Intel's Panther Lake, indicating that TSMC will likely retain some supporting tiles.
TSMC's capital expenditure forecast for 2024 has been slightly adjusted upwards due to CoWoS investments, but projections for 2025 and 2026 remain unchanged. The firm's valuation has expanded in recent months, yet it still trades at a discount of approximately 25% compared to the Semiconductor Industry Index (SOX), which the analyst considers reasonable given the rapid earnings growth and visibility. The price target corresponds to a forward P/E of 20 times, deemed very reasonable by the firm.
In other recent news, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) reported mixed Q1 2024 earnings, with a sequential revenue decline of 5.3% in NT dollars and 3.8% in USD, yet an increase in gross margin to 53.1%. The company's Q2 revenue is forecasted between USD 19.6 billion and USD 20.4 billion, with a gross margin of 51% to 53%.
Recent developments include Morgan Stanley (NYSE:MS) raising TSMC's price target due to strong demand for Apple's AI semiconductors, while Susquehanna increased the price target citing TSMC's industry leadership in the N3, N4, and N5 semiconductor nodes. Citi also raised TSMC's price target, reflecting the company's strong market position and anticipated growth in demand for AI GPUs/accelerators and edge AI devices.
TSMC's N2 technology, projected to lead in energy-efficient computing, is expected to start volume production in 2025, with AI processors predicted to significantly drive revenue growth in the coming years.
InvestingPro Insights
Bernstein SocGen Group's optimistic outlook on Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) is echoed by several key metrics from InvestingPro. With a robust Market Cap of $786.9 billion and a Price to Earnings (P/E) Ratio close to 29.67 for the last twelve months as of Q1 2024, TSMC stands as a heavyweight in the semiconductor industry. The company's Revenue Growth for the same period shows a slight contraction of -1.56%, yet the Quarterly Revenue Growth presents an impressive 16.52% increase in Q1 2024, indicating a strong start to the year.
InvestingPro Tips suggest that TSMC's Gross Profit Margin of 53.57% and Operating Income Margin of 41.82% for the last twelve months as of Q1 2024 are indicative of the company's efficiency and pricing power in the market. Additionally, the substantial Year-to-Date Price Total Return of 73.76% highlights the positive market sentiment towards TSMC's stock performance. For investors seeking further guidance, InvestingPro offers additional tips on how to navigate TSMC's financials and market trends.
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