TSMC Will Soldier On To Growth Despite AMD & NVIDIA’s Troubles Says Wedbush

Ramish Zafar
The Taiwan Semiconductor Manufacturing Company's (TSMC) headquarters in Hsinchu, Taiwan. Image: Bloomberg

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The Taiwan Semiconductor Manufacturing Company (TSMC) will continue to outperform its rivals in the contract chip manufacturing sector despite recent macroeconomic headwinds believes investment bank Wedbush. TSMC's customers have been facing growing headwinds in the personal computing market due to ifnaltion biting the consumer's purchasing power, but Wedbush believes that while AMD, NVIDIA and Chinese handsets will continue to weaken, revenues from Apple's personal computing penetration and a stronger U.S. dollar will work in the Taiwanese chipmaker's benefit.

Wedbush Cuts TSMC's Share Price Target to NT$600 From NT$800 Due To Softness In Semiconductor Industry

The research note came out as TSMC is set to report its earnings for the third quarter of last year later this week. Analysts focusing on the event will be on the lookout for management's take on the current state of the semiconductor industry and whether TSMC will maintain its capital expenditures.

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A report from Taiwan that surfaced on the weekend cited an analyst to speculate that the capital expenditures will grow in 2023 as well, as, despite the slowing demand, TSMC will have to invest if it is to keep up with its Korean rival Samsung Foundry. Both are ramping up 3-nanometer semiconductor manufacturing and both also intend to kick start 2-nanometer production by 2025 - and therefore the pair will be forced to spend heavily if they're to keep up with each other.

On the competition front, Wedbush is optimistic about TSMC's fortunes as it believes that the company will continue to outperform its rivals on the share price front. The research firm is also confident about its estimates for TSMC's revenue for the third and fourth quarters of 2022, as it expects the fab to bring in NT$600 billion and NT$610 billion in the quarters, respectively.

TSMC's shares have taken a beating on the stock market this year in the midst of a broader technology downturn that has seen capital bleed out.

Wedbush's key worries for TSMC remain AMD's slowing personal computing demand and NVIDIA's softer data center results. Both companies have reported massive drops in their latest quarterly results, with AMD ascribing the drops to a reduction in component sales for personal computing products and NVIDIA to reduced GPU sales in a tough macroeconomic environment and also spurred by the cryptocurrency price crash of 2022.

However, Wedbush believes that Apple's greater penetration into the personal computing market and a stronger U.S. dollar which has appreciated by 6% against the NT$ recently will help TSMC's gross margins and sales for this year's fourth quarter. A stronger dollar lets the company earn more Taiwanese dollars, and helps the margins since its expenses are also incurred in NT$; essentially reducing TSMC's costs and increasing its revenue simply due to foreign currency fluctuations.

Looking forward to 2023, the research firm is optimistic that new products from Qualcomm and NVIDIA will help TSMC and server market share losses by Intel and Apple's M-series chip market share growth will also aid the company to maintain its strong trajectory. It also believes that there is no serious competition to the Taiwanese firm when it comes to manufacturing on advanced process nodes, with this enabling TSMC to command higher prices through price increases that have been reported recently.

TSMC's shares are down by 36% year to date, and consistent worries of oversupply in the semiconductor segment have made analysts and investors wary of the chip sector's prospects. The downturn comes after companies reported record revenues and shipments in the wake of the coronavirus pandemic which saw record growth as populations all over the globe turned to compute devices for their work and entertainment needs.

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