Taiwan Semiconductor Manufacturing Company Limited (TSM) Stock Analysis

Taiwan Semiconductor Manufacturing Company Limited (TSM) is poised to break out of a multi-year resistance level near $130 due to a combination of strong technical and fundamental factors. Below, we analyze these factors in detail.

Key Points

Technical Analysis

• Uptrend and Volume: TSM stock has shown a robust uptrend in recent months, making higher highs and higher lows since October 2023.
• Breakout Potential: The stock has recently broken out of a multi-year resistance level near $130.
• Trading Volume: There has been an increase in trading volume, indicating greater interest and buying pressure on the stock.

Fundamental Analysis

• Valuation: TSM’s current P/E ratio is around 27x, which is above its historical average of approximately 19.5x. However, for a highly cyclical stock like TSM, P/E ratios may not be the best entry or exit point indicator.
• Cyclicality: TSM is emerging from a contraction phase in its cycle and is expected to enter an expansion phase soon, as indicated by its quarterly revenue growth trends.
• Growth Potential: Consensus estimates suggest strong earnings growth for TSM in the next few years. For FY 2024, the consensus EPS estimate is 6.31, with a year-over-year growth of 22%. For FY 2025, the consensus EPS estimate is 7.88, with an annual growth rate of 24.89%.
• Macro Trends: Factors such as the normalization of COVID-related shutdowns, easing inflation, and the rise of generative AI will support TSM’s earnings in the expansion cycle.

Risks

• Inventory Levels: TSM’s Days Inventory Outstanding is currently 88.6 days, significantly higher than its historical average of around 63 days. This poses risks related to holding costs, obsolescence, and balance sheet impacts.
• General Risks: Cyclicality, geopolitical tensions, and macroeconomic uncertainties can also affect TSM’s performance.

Conclusion

Overall, TSM stock presents a compelling buy opportunity, supported by strong technical and fundamental signals. The stock is poised for a breakout, and analysts expect robust earnings growth in the coming years. While risks such as high inventory levels and general market uncertainties exist, the upside potential appears to outweigh the downside risks.

For investors seeking to capitalize on TSM’s potential breakout and growth prospects, now may be a strategic time to consider a position in the stock.