TSMC Q1 preview: Where next for TSM stock?

When will TSMC report Q1 2022 earnings?

Taiwan Semiconductor Manufacturing Co – better known as TSMC – is scheduled to report first quarter earnings on Thursday April 14.

TSMC Q1 2022 earnings preview

It is expected to be another record quarter for TSMC, the largest contract chipmaker in the world, driven by strong demand from the high-performance computer market, a continued recovery in the automotive sector and ‘milder smartphone seasonality than in recent years’.

TSMC has already released monthly revenue figures for the first quarter of 2021 and has said it generated NT491.1 billion in sales during the first quarter. That not only represents a new quarterly record for the business but is well above the consensus forecast of NT471.5 billion. That would be up over 35% from the year before.

The continued surge in sales is also being accompanied by improved profitability. TSMC is set to report its third consecutive quarter of higher margins. Analysts believe its gross margin will come in bang in the middle of its guidance range at 54% in the quarter while its operating margin is forecast to come in toward the upper end of its target range at 43.5%.

One of the reasons profitability is on the rise is the shift in sales mix toward its latest and most-advanced chips such as its 7-nanometer products, which now account for exactly half of all revenue. Meanwhile, demand for other products such as its 5-nanometer chips has also remained resilient.

The end result will be impressive growth in profits. Earnings per share is forecast to grow 33% year-on-year to NT7.18 from NT5.39, according to consensus figures from Bloomberg. That would also represent a new quarterly record for the business but TSMC may surprise here given the better-than-expected revenue performance. The fact the US dollar has also significantly appreciated against the Taiwanese dollar also suggests the firm could experience a bigger forex-related gain than previously expected, suggesting earnings per ADR could also come in higher than anticipated.

TSMC’s quarterly updates tend to be short and sweet, focusing on the numbers and providing limited commentary in the release, with most details being revealed in the subsequent conference call with investors and analysts. Analysts are expecting questions to be directed toward how supply chains are faring amid rising geopolitical risks and disruption, including the problems in China amid fresh Covid-19 lockdowns across the country and how this could impact both supply and demand going forward.

Where next for TSM stock?

TSMC shares have come under severe pressure since hitting fresh all-time highs of $145 in January, which was the result of a 161% surge since the start of the pandemic in March 2020. The stock has declined almost 30% since then and recently sank below the $97 mark for the first time in over 16 months this week.

The latest leg of the downtrend started late last month and remains intact despite the rise seen during today’s session. Shares need to make a sustained move above the $100 mark to install confidence that the 16-month low will hold as a floor for the stock and signal a move higher toward $110, the peak of the last uptrend and largely in-line with the 50-day moving average.

A move above there would provide a strong signal that a reversal is afoot and open the door to the 100-day and 200-day moving averages that have converged at $166.50. Beyond there, we could see the stock climb to the February-high of $128 before it can target the all-time high of $145. Notably, the 32 brokers that cover the stock see over 54% potential upside over the next 12 months and believe fresh all-time highs can be achieved with an average target price of over $152.

If the current downtrend continues, as suggested by the bearish RSI and the fact the 50-day sma continues to sink further below the longer-term moving averages, then the 16-month low will be tested again and, if broken, could see shares fall to the next key level of support seen in November 2020 closer to $95.

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