Taiwan Semiconductor Stock Dips Despite Upbeat Q2 Outlook

Taiwan Semiconductor (NYSE: TSM) is down 2.2% at the time of writing despite the semiconductor contract manufacturing and design company delivering strong results for the first quarter of 2022.

The company also provided guidance for the second quarter, well above analysts’ expectations.

The good results were driven by high demand for its chips, especially its industry-leading 5-nanometer technology amid the growing use of smartphones, laptops, and automobiles.

Results in Detail

Earnings of NTD 39.09 ($1.40 per American Depositary Receipt (ADR)) grew 45.1% year-over-year, beating analysts’ expectations of $1.27 per ADR. 

Also, revenues increased 35.5% year-over-year to NTD 491.1 billion ($17.6 billion). The top line exceeded consensus estimates of $16.7 billion.

During the quarter, shipments of 5-nanometer technology accounted for 20% of total wafer revenue. In addition, advanced technologies, which include 7-nanometer and more advanced technologies, accounted for 50% of total wafer revenue.

For the quarter, Taiwan Semiconductor reported a gross margin of 55.6%, while its operating margin came in at 45.6%, and its net profit margin was 41.3%.

Q2 Outlook

Q2 revenues are forecast to be in the range of $17.6 billion to $18.2 billion, according to the company. This is higher than the consensus estimate of $17.3 billion.

Next, its gross profit margin is expected to be in the range of 56% and 58%, while its operating profit margin is expected to be between 45% and 47%.

VP and Chief Financial Officer of TSMC, Wendell Huang, said, “Moving into second-quarter 2022, we expect our business to continue to be supported by HPC and Automotive-related demand, partially offset by smartphone seasonality.”

Wall Street’s Take

Overall, the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on one Buy and one Hold. The average Taiwan Semiconductor price forecast of $116 implies 17% upside potential from current levels.

Hedge Fund Trading Activity

TipRanks’ Hedge Fund Trading Activity tool shows that hedge fund confidence in TSM is currently Very Positive. The cumulative change in holdings across all 24 hedge funds that were active in the last quarter increased by 1.8 million shares.

Takeaway

Investors seem unimpressed with TSMC’s performance in the first quarter, despite being better than expected. Nonetheless, persistent demand for chips globally is expected to support the company’s performance in the next quarter.

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