Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) reported better-than-expected sales in May which may be due to the initial benefit from increased demand for AI-related wafers, Wedbush analysts said as they confirmed their ‘Outperform’ rating on Apple’s key chipmaker.
The semiconductor foundry reported a 19.% month-over-month rise in sales for May to NT$176.5 billion (US$5.74), ahead of expectations, especially if it benefits from some ramp-up in June into a second-half recovery, the analyst said in a note.
“With NVDA's (Nvidia Corporation’s) heightened requirements and silicon production for new Apple products only likely to ramp into CQ3, we see reason to believe that the June quarter will exceed our prior expectations, a result that should also drive optimism that TSMC will be able to meet/beat CQ3 estimates that require revenues to ramp significantly,” they added.
With no signs of a significant deterioration in wafer pricing, particularly for 12-inch products, and press reports suggesting the company may see room to further lift prices on certain processes into 2024, the analysts said they believe price stability remains intact, a significant positive for Taiwan Semiconductor and the broader foundry market.
Additionally, the stable Taiwanese/US dollar exchange rate limits currency ramifications in the current quarter, they added.
“Two months into the quarter with sales tracking ahead and reasons to believe we could see a stronger than seasonal close to the June quarter, we now believe our Q2 expectations appear at least modestly overly conservative,” the analysts said.
“Given a likely better-than-expected quarter from TSMC and increased expectations around the potential contribution from growing AI requirements through the 2H, we are reiterating our positive view on the stock.”
Wedbush has a 12-month price target of NT$600 for the company.
Contact the author at stephen.gunnion@proactiveinvestors.com