TSMC’s Revenue Beats Market Expectation Stock up 1% in Premarket

9 oct.

Taiwan Semiconductor Manufacturing Company (NYSE: TSM), the world’s largest contract chipmaker, has once again surpassed market expectations, reporting third-quarter revenue of NT$759.69 billion ($23.62 billion). This result not only outshines the forecast of NT$750.36 billion but also marks a remarkable 39.6% year-on-year growth for September alone. TSMC's performance continues to be buoyed by increasing demand for artificial intelligence (AI) chips, with major clients like Nvidia and Apple relying heavily on its advanced chip production. With AI hardware spending playing a pivotal role, the question arises: how long can TSMC sustain this momentum?

AI Demand as a Driving Force
TSMC (NYSE: TSM) has been at the forefront of the AI revolution, with demand for cutting-edge chips continuing to rise. As one of the key suppliers for AI hardware, especially for Nvidia's graphics processing units (GPUs) used in AI server farms, TSMC has benefitted immensely from the recent AI boom.

- Revenue Growth: For the third quarter of 2024, TSMC reported an impressive revenue of $23.62 billion, a 36.5% on-year growth compared to the same period in 2023. This growth is largely attributed to the rising global investment in AI infrastructure.
- Customer Base: TSMC’s clientele includes giants such as Apple and Nvidia, both of which are instrumental in the AI market. Apple’s continuous demand for high-performance chips for its devices and Nvidia’s increasing need for AI GPUs have fueled TSMC’s steady revenue stream.
- Pandemic vs. Post-Pandemic Demand: While demand related to the pandemic has tapered off, the surge in AI development has compensated for this decline. TSMC’s ability to pivot its focus toward emerging technologies has helped it maintain a competitive edge.

As governments and companies continue to chase AI supremacy, TSMC’s position as the key chip manufacturer cements its role in this ongoing technological race. However, there are concerns that infrastructure spending on AI may begin to taper off if no immediately monetizable AI use cases emerge. This sure will be an important trend to monitor in the coming quarters.


Technical Outlook: Is TSMC Approaching a Breakout?
From a technical standpoint, TSM is showing strong signs of bullish momentum. The stock is currently up 1% in premarket trading as of Wednesday and has gained 72% year-to-date, outperforming the broader market.

As of Tuesday’s close, the Relative Strength Index (RSI) for TSM sits at 68, suggesting that the stock is approaching overbought territory but hasn’t quite crossed the threshold yet. This indicates that while there’s significant buying momentum, a pullback or consolidation phase could be imminent.

The stock has been trading closely to its moving average for several weeks before breaking out during the first week of October. This upward movement has triggered increased buying interest.

One of the most compelling technical patterns forming on TSM’s daily chart is the "Three White Crows," which is a bullish continuation pattern. This pattern consists of three consecutive long-bodied candles, each closing higher than the previous day, signaling that the stock could maintain its upward trajectory for a while longer.

Given the RSI nearing overbought levels and the emergence of the "Three White Crows" pattern, (NYSE: TSM) may experience continued growth in the short term. However, cautious investors may want to wait for a possible retracement or consolidation before entering a new position.

Outlook and Risks: What Should Investors Watch For?
As TSMC (NYSE: TSM) prepares to release its full earnings report on October 17, investors will be closely monitoring the company’s future guidance, especially in relation to AI demand. While current demand remains strong, sustained growth will largely depend on whether large AI players like Meta and Google can continue their current pace of infrastructure spending. Without monetizable use cases, there’s a risk that demand for AI hardware could plateau.

Additionally, geopolitical tensions, particularly between Taiwan and China, could present risks for TSMC. As a key player in the global semiconductor supply chain, any disruption in TSMC’s production capabilities could have far-reaching consequences.

Conclusion
TSMC’s recent performance reaffirms its pivotal role in the global AI hardware ecosystem. With AI demand driving substantial revenue growth, the company is well-positioned to continue capitalizing on this trend. However, investors should be mindful of potential risks, including overbought technical indicators and broader market factors that could impact AI hardware spending.

Technically, the "Three White Crows" pattern suggests continued bullish momentum, but with the RSI nearing overbought territory, a cautious approach may be warranted. Long-term investors with faith in the sustained growth of AI and semiconductor demand may view this as an opportune moment to hold or add positions in TSM(NYSE: TSM).

Ultimately, TSMC's future trajectory will hinge on AI developments and how effectively the company navigates emerging challenges. All eyes will be on its full earnings report and guidance later this month.