Amid a global supply glut and a retreat by billionaire investor Warren Buffett, analysts have rarely been so optimistic about Taiwan Semiconductor Manufacturing Co (TSMC, 台積電).
All but one of the 40 who cover the stock have a buy or equivalent recommendation on the world’s biggest chipmaker, a proportion that is the highest in at least two decades, data compiled by Bloomberg showed.
Ahead of what analysts expect to be a weak first-quarter earnings report today, bulls say investors are already factoring in the worst effects from a backlog of supply and sluggish demand.
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“We are likely closer to the bottom for the industry,” abrdn PLC investment director Christina Woon said. “The longer-term structural growth drivers remain intact, and in fact, with higher demands for computing power amid growing applications for artificial intelligence (AI) etc, we can even argue that the picture looks stronger. Against that backdrop, even with the rise year-to-date, an incumbent like TSMC is not trading at prohibitive levels.”
Susquehanna International Group analyst Mehdi Hosseini on Monday became the latest analyst to turn bullish, upgrading TSMC to positive from neutral.
A ramp up of new products would fuel “modest revenue improvement” later this year after a “severe” decline in wafer shipments and revenue in the first half, he said.
Hosseini sees quarterly earnings per share rebounding faster than revenue from the third quarter, a trend he expects to gather momentum into next year.
That view is echoed by JPMorgan Chase & Co managing director Gokul Hariharan.
Although he sees downside to the company’s outlook for this year, “we believe market expectations have already been right-sized,” Hariharan wrote in a note on Monday last week.
He expects focus to shift toward a potential rebound “in the near to medium term,” he added.
The sentiment follows a host of top fund managers touting the opportunity for the broader chip sector in the coming months. Allianz Global Investors sees a bottom for sales in the second quarter, while Pictet Asset Management Ltd forecasts earnings through the first half.
With TSMC shares trading at about 14.8 times estimated earnings, much lower than its five-year average of 21 times, valuation forms another string to the bulls’ bow. The shares were down 0.97 percent yesterday in Taipei trading.
Optimists also point to the company’s strong position in AI as presenting potential revenue upside. TSMC forges chips for the likes of Nvidia Corp, which makes semiconductors that are used to train and refine AI systems. Earlier this year, Nvidia offered a bullish outlook for the quarter thanks to its AI applications.
To be sure, investors still have plenty of grounds to be wary. Geopolitical tensions between Taiwan and China remain high, which Buffett cited for his decision to cut his stake in TSMC by 86 percent in the fourth quarter of last year.
Then there are concerns about a cut in guidance with today’s results after the company announced “very weak” monthly sales for last month, Union Bancaire Privee managing director Ling Vey-sern (凌煒森) said.
Yet most investors and analysts remain optimistic that a recovery in demand can provide the next catalyst.
“Longer term, I think there should be no argument about high structural demand that can support TSMC’s growth,” Ling said.
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