J.P. Morgan analyst Gokul Hariharan believes that Taiwan Semiconductor Manufacturing (TSM) will provide a mixed outlook when it releases its earnings report next month. In a recent note, Hariharan stated that he expects TSMC to be more conservative regarding capital expenditures and the semiconductor cycle. He also anticipates muted comments on the recovery for the first half of 2024, which may lead to a decrease in Wall Street’s consensus on revenue growth for that year.
Despite these predictions, TSMC’s American depositary receipts saw a 1.3% increase in Thursday’s trading session, reaching $86.51.
TSMC is widely known for its dominance in the high-end chip market, producing main processors for Apple iPhones, Qualcomm mobile chipsets, and Advanced Micro Devices processors. With a market share of 56% in the third-party chip-manufacturing business, TSMC holds the leading position, followed by Samsung with 12%, according to TrendForce.
Earlier this year, TSMC revised its financial guidance, projecting a 10% decline in revenue compared to the previous year. Management attributed this decline to weaker-than-expected demand outside of the AI chip market and slow recovery in China.
Looking ahead, Hariharan expects TSMC’s business in 2023 to disappoint due to excess inventory and soft demand in key chip markets such as computers, smartphones, and non-AI servers. He believes that early indicators suggest a weak and gradual rebound in the semiconductor industry. Consequently, he foresees potential EPS cuts and an extended downcycle for TSMC’s stock in the near term.
However, Hariharan remains optimistic about TSMC’s prospects in 2025, predicting it to be a significant year for the company as its customers launch new chips. He maintains an Overweight rating for TSMC’s Taiwan-traded shares and reiterates his price target of 650 Taiwan dollars based on the company’s long-term technological leadership.
This target represents approximately a 25% upside from the current levels of TSMC’s ADRs.