TSMC Q2 preview: Where next for TSM stock?

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Josh Warner
By :  ,  Former Market Analyst

When will TSMC release Q2 earnings?

Taiwan Semiconductor Manufacturing Co, better known as TSMC, is scheduled to release second quarter earnings on Thursday July 14.


TSMC Q2 earnings consensus

We already know revenue came in around NT$534,140 million thanks to the company’s monthly reports, and that was better than the NT$519,537 million forecast by analysts. That pushes the focus onto earnings. Wall Street forecasts TSMC will report a 62% year-on-year rise in quarterly EPS to NT$8.41. 

TSMC said it was targeting a gross margin of 56% to 58% in the quarter and analysts have pencilled-in 56.8%. The company is aiming for an operating margin of 45% to 47% and analysts are looking for 46.8%.


TSMC Q2 earnings preview

TSMC’s quarterly updates are usually short and sweet, but we can expect it to prove highly influential on how markets perceive the outlook for the wider semiconductor space given the company is the largest semiconductor manufacturer in the world. The company has proven its ability to navigate the tough environment so far, having consistently grown sales and improved margins despite supply chain problems, Covid-19 lockdowns in China and the disruption caused by the war in Ukraine.

There has been mixed news out of the semiconductor space in recent weeks, casting fears that we could start to see a slowdown following the boom in demand seen over the last couple of years, with constrained supplies having also helped elevate prices. Markets believe demand for chips used in higher-end applications, such as high-performance computers and cars, should hold up despite rampant inflation and slower economic growth, although there could be softness in demand for lower-margin applications such as electronic devices as fears an economic downturn is on the horizon continue to grow. With that in mind, more advanced chips accounted for exactly half of all TSMC’s revenue in the first quarter, with the other made up of 5-nanometer and 7-nanometer chips mostly used in computers and smartphones.

TSMC provides forward guidance on a quarterly basis, which will go a long way in deciding how markets receive the update this week. The outlook focuses on the topline in US dollar terms and Wall Street expects TSMC to target $18.4 billion in revenue the third quarter of 2022. In terms of margins, analysts are looking for a gross margin of 56% and an operating margin of 46.8%.

A report from DigiTimes asia earlier this month suggested some of TSMC’s major clients have started to reduce order volumes for the rest of 2022, warning it could see the company lower its revenue expectations for the remainder of the year when it releases results this week. Unnamed sources said Apple’s order for its upcoming iPhone launch in September was around 10% below the original size, while others like AMD and NVIDIA have also scaled-back orders. Micron, which makes memory and data storage chips, updated its full year outlook earlier this month and it came in much lower than anticipated, disappointing the markets and triggering concerns that demand is starting to unwind.

However, there are signs that suggest the contrary. In response to claims that a slowdown is about to hit Taiwan’s burgeoning semiconductor industry, economy minister Wang Mei-hua said earlier this month that order books for both mature and more advanced chips and nodes were ‘still very full’. ‘It looks like at the moment the business is firm for Taiwan’s semiconductor industry,’ the minister said. That was reinforced by an update out from Foxconn, the largest contract electronics maker in the world, which raised its full year outlook last week thanks to strong demand for smartphones and servers, pointing toward ‘significant growth’ in the third quarter of 2022.

Wall Street currently believes TSMC can deliver an impressive 33% jump in annual sales in 2022, with the recent strength of the US dollar set to provide a further boost to the topline. If achieved, that would mark the fastest topline growth in years. Meanwhile, improved profitability means EPS is expected to grow at an even faster rate of 46% this year.

TSMC investors have a new catalyst to look forward to in the second half, when the company will begin mass production of its new 3-nanometer technology. This is an upgrade that offers faster speeds, better power consumption and more logic density than its existing 5-nanometer chips, with TSMC stating the new product will ‘offer the most advanced foundry technology in both PPA (power, performance and area) and transistor technology when it is introduced.’ That is significant considering its next upgrade targeting 2-nanometer technology is not expected to come into play until 2025.


Where next for TSM stock?

TSMC shares remain stuck in the downtrend that has seen the stock slump over 43% since they peaked in January.

Investors will take some comfort from recent rebound after it sank to a near two-year low earlier this month at $73.75. This pushed the RSI into oversold territory and suggests this is low enough to attract buyers back into the market. If that initial floor fails to hold then we could see the stock slip below the $70 mark. Notably, a fall below here would be more significant as it would open the door to $55.

The fact the average-volume-at-time during the push higher over the past five days sits some 10% above the 10-day average and 16% above the 100-day average also suggests the recent rise could gain momentum.

If the stock can find higher ground, then it needs to break out of the current downtrend. The 50-day moving average has acted as the ultimate ceiling for the stock this year so $88.50 should be regarded as the first major upside goal. From there, it can target the 100-day moving average at $96.75, which is in-line with the June-high, and then the 200-day moving average at $108, which is in-line with the March peak. The 10 brokers that cover TSMC’s shares on the NYSE remain bullish on the stock with an average Buy rating and believe the selloff this year has been overdone with an average target price of $138.54 – implying there is 75% potential upside from the current share price.

TSM stock has rebounded since hitting its lowest level in almost two years


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