After Upbeat Outlook, Is It Time to Buy Taiwan Semiconductor Manufacturing?

Core Viewpoint - Taiwan Semiconductor Manufacturing Company (TSMC) continues to demonstrate strong performance in the semiconductor industry, particularly driven by AI chip demand, with a significant year-to-date stock increase of approximately 50% [1] Financial Performance - TSMC reported Q3 revenue of $33.1 billion, a 41% increase year-over-year, with earnings per American depositary receipt (ADR) rising 51% to $2.92 [5] - The company's gross margin improved by 170 basis points to 59.5%, while operating margins increased by 310 basis points to 50.6%, both exceeding prior forecasts [6] Revenue Breakdown - In Q3, nodes of 7 nanometers (nm) and under accounted for 74% of TSMC's revenue, up from 69% a year earlier, with the newest 3-nm technology contributing 23% of total wafer revenue [3] - High-performance computing (HPC) revenue remained flat sequentially, while smartphone revenue grew 19% quarter-over-quarter, now representing 30% of total revenue [4] Future Outlook - TSMC projects Q4 revenue between $32.2 billion and $33.4 billion, indicating about 22% year-over-year growth at the midpoint, with gross margins expected between 59% to 61% [7] - The company anticipates mid-30% revenue growth for the full year, up from a previous forecast of 30%, driven by strong AI chip demand and a recovery in other chip markets [7][8] Market Position and Strategy - TSMC is a critical player in the semiconductor supply chain, essential for the manufacturing of advanced chips for companies like Nvidia and Broadcom [2] - The company is committed to expanding its cutting-edge capacity in the U.S., including plans for 2nm and 1.6nm node technologies, despite higher operational costs leading to increased prices [9] Valuation - TSMC is currently trading at a forward price-to-earnings (P/E) ratio of 26 based on analysts' 2026 estimates, which is considered reasonable given the company's growth prospects [10]