Shares of Taiwan Semiconductor (TSM 9.79%) were surging today after the company delighted investors with its fourth-quarter earnings report, forecasting a return to revenue growth in the first quarter after a cyclical slowdown in the semiconductor sector.
While the results in the fourth quarter itself were relatively weak, it still beat estimates, and guidance was strong enough to give TSMC (as it’s also known) a boost and propel many of its chip-designing customers higher, including Intel, AMD, Broadcom, and Nvidia.
As of 11:28 a.m. ET on Thursday, shares of TSMC were up 8.1% on the news.
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Taiwan Semi bounces back
Coming out of the pandemic, a slowdown in demand for electronics like computers and a glut in chips had led to weak results for most industry players. But TSMC, the world’s largest semiconductor foundry, now sees that fading to the background.
The company said revenue was down just slightly in the fourth quarter, falling 1.5% to $19.62 billion, but that topped estimates at $19.45 billion. That also represented 13.6% growth from the previous quarter.
Gross margin in the quarter fell from 62.2% a year ago to 53%, reflecting lower capacity utilization, and that sent earnings per share down from $1.82 a year ago to $1.44, but that was still better than expectations of $1.37.
The company continues to ramp up its 3-nanometer chip technology as that accounted for 15% of its revenue, up from nothing a year ago. Producing the 3nm chips should strengthen its competitive advantage in advanced technologies.
What’s next for TSMC
Management called for revenue of $18 billion to $18.8 billion in the first quarter, which represents a sequential decline, but a return to growth on a year-over-year basis.
Better yet, TSMC said it expects its business to improve every quarter over 2024 and forecasts full-year revenue to rise in the low-to-mid-20% range, noting the “steep inventory correction” and a low sales base in 2023, which will help comparisons with this year.
That’s clearly a promising sign, and it should benefit from the tailwind in artificial intelligence over the coming years as well. Taiwan Semiconductor has considerable competitive advantages in chip manufacturing, and the stock trades at a reasonable valuation, giving it plenty of upside potential in the coming years.
Jeremy Bowman has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
