TSMC Is Reporting Lower Revenue But It Still Looks Like A Buy

TSMC stock analysis.
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Taiwan Semiconductor Manufacturing released earnings last week and the stock dropped around 3%. At the latest share price, the company has a market cap of 520 billion dollars. It’s got 51 billion of cash and investments and 29 billion of long term debt so the enterprise value is 498 billion.

Revenue over the last 12 months is 72.6 billion with net income of 31.5 billion and adjusted ebitda of 49 billion. That means the stock is valued at 7 times revenue, 17 times earnings and 10 times ebitda. The company also pays a dividend of around 1.8%.

Although TSMC has grown revenues consistently over the last 10 years, the company reported a 23% drop in net profit in the second quarter and management gave a pessimistic guidance. They now think that revenue will be down 10% for the year with operating margins declining to 38%.

The main reason is that consumers are buying fewer goods in the face of inflation. When fewer products are bought, companies order less stock and when companies order less stock, TSMC gets fewer orders, leading to lower revenue.

However, more than half of TSMC’s revenue comes from chips of 7 nanometres or less. These advanced chips power the high-performance computers and smartphones that we’ve come to rely on. Once the cycle bottoms out and company inventory starts depleting, TSMC is expected to bounce back. Analysts expect 2024 revenue to rebound 20% to 80 billion.

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