Headquartered in Hsinchu City, Taiwan, Taiwan Semiconductor Manufacturing Company Limited (TSM) manufactures and sells integrated circuits and other semiconductor devices internationally. Although the company’s business was dampened by end-market demand weakness and customer inventory adjustment, its fourth-quarter revenue increased by 42.8% year-over-year, while net income and EPS both grew by 78%.

Wendell Huang, TSM’s VP and Chief Financial Officer, said, “Moving into first quarter 2023, as overall macroeconomic conditions remain weak, we expect our business to be further impacted by continued end market demand softness, and customers’ further inventory adjustment.”

Based on the company’s current business outlook, management expects revenue for the first quarter of fiscal 2023 to be between $16.70 billion and $17.50 billion. Its gross profit margin will likely arrive between 53.5% and 55.5%, while its operating profit margin is expected to come between 41.5% and 43.5%.

In December 2022, TSM announced a second chip plant for Arizona to begin production of highly coveted 3nm process technology in 2026. The second fab will join TSM’s first under-construction fab in Arizona, which is scheduled to begin production of N4 process technology in 2024. The total investment for both plants is expected to be nearly $40 billion.

On completion, TSM’s Arizona-based two fabs will manufacture over 600,000 wafers annually, with an estimated end-product value of approximately $40 billion.

Also, on October 27, TSM announced the Open Innovation Platform (OIP) 3DFabric Alliance at the 2022 Open Innovation Platform Ecosystem Forum. TSM’s first-of-its-kind alliance in the semiconductor industry will help customers achieve speedy silicon and system-level innovations and enable next-generation HPC and mobile applications using TSM’s 3DFabric technologies.

Following the legendary investor Warren Buffett’s investment, the stock received a lot of attention. On November 14, 2022, Buffett’s Berkshire Hathaway Inc. (BRK.A) bought more than $4 billion of stock in TSM. According to the regulatory filing, Berkshire Hathaway acquired about 60 million American depository shares of TSM in the three months that ended September 30.

TSM has gained 25.5% in price over the past month and 7.8% over the past six months to close the last trading session at $93.13.

Here’s what could influence TSM’s performance in the upcoming months:

Robust Financials

TSM’s net revenue increased 42.8% year-over-year to $19.93 billion, and its gross profit grew 68.7% from the year-ago value to $12.40 billion for the fourth quarter ended December 31, 2022. The company’s income from operations came in at $10.36 billion, up 77.8% year-over-year.

Furthermore, the company’s net income increased 77.8% year-over-year to $9.43 billion, while its EPS came in at $0.36, representing an increase of 78% year-over-year. As of December 31, 2022, its cash and cash equivalents stood at $43.72 billion, up 26.1% year-over-year.

Favorable Analyst Estimates

Analysts expect TSM’s revenue for the current fiscal year ending December 2023 to increase 3.3% year-over-year to $76.98 billion. Moreover, the company’s revenue and EPS for the next fiscal year are expected to grow 20.1% and 23% year-over-year to $92.46 billion and $7, respectively. It also surpassed the consensus EPS estimates in each of the trailing four quarters.

Attractive Dividend

TSM is committed to returning value to its shareholders through reliable dividends. It pays a $1.82 per share dividend annually, which translates to a 1.95% yield on the current price. Its four-year average dividend yield is 2.47%. The company’s dividend payouts have grown at a 9.6% CAGR over the past five years.

High Profitability

TSM’s trailing 12-month gross profit margin of 59.56% is 20.6% higher than the industry average of 49.37%. Also, the stock’s trailing-12-month EBITDA margin and net income margin of 68.84% and 44.90% compare to the industry averages of 11.22% and 3.22%, respectively.

In addition, TSM’s trailing-12-month ROCE, ROTC, and ROTA of 39.90%, 20.85%, and 20.47% are significantly higher than the respective industry averages of 4.97%, 3.05%, and 1.47%.

POWR Ratings Show Promise

TSM has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TSM has an A grade for Quality, consistent with its high profitability.

In addition, TSM has a B grade for Momentum. The stock is trading above its 50-day and 200-day moving averages of $81.55 and $82.10, respectively, indicating an uptrend.

TSM is ranked #20 out of 92 stocks in the B-rated Semiconductor & Wireless Chip industry. Click here to access TSM’s Growth, Value, Stability, and Sentiment ratings.

Bottom Line

TSM is the world’s leading dedicated semiconductor foundry. Despite softening demand in the end market and customers’ inventory adjustment, TSM reported strong revenue and earnings in the fourth quarter of fiscal 2022. Moreover, with the industry’s leading process technologies and portfolio of design enablement solutions, the company is well-positioned to sustain its business momentum in the upcoming quarters.

While chip stocks had a rough 2022, with oversupply and other macroeconomic forces working against them, TSM continued to reward its shareholders with reliable dividends, providing a cushion against lingering headwinds. Given its solid financials, high profitability, and promising growth prospects, this chip stock could be an ideal buy now.

How Does Taiwan Semiconductor Manufacturing Company Limited (TSM) Stack up Against Its Peers?

TSM has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Semiconductor & Wireless Chip industry with an A (Strong Buy) rating: Renesas Electronics Corporation (RNECF), STMicroelectronics N.V. (STM), and Advantest Corporation (ATEYY).

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TSM shares fell $2.31 (-2.48%) in premarket trading Tuesday. Year-to-date, TSM has gained 25.02%, versus a 4.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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