Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) stock has lost more value than any other in Asia since the middle of June as investors brace for prolonged weakness in the chip sector — and the rout might not be over.
Since its June high, TSMC shares have fallen 11 percent, erasing US$77 billion from its market cap due to worries about the macro environment and soft global consumer electronics demand.
A continued rise in the volatility skew in the past few months as traders bid up bearish contracts is indicating a further drop in TSMC’s stock.
Photo: Sam Yeh, AFP
Shares of the world’s largest contract chipmaker soared 60 percent between October last year and June thanks to the global frenzy over everything related to artificial intelligence (AI).
However, traders have turned more wary about just how much that would contribute to the bottom line, especially without a pickup in the smartphone and PC business. Even high-end AI chip orders have slowed at a faster pace than expected.
For JPMorgan Chase & Co, all this means a slower recovery for TSMC going into next year, given the softness in most end markets such as PCs, smartphone and non-AI services, analysts including Gokul Hariharan wrote in a recent note.
“With a murky macro outlook, we expect 1H 24 orders to remain sluggish,” he said.
Meanwhile, analysts are also turning wary about capital spending, given that TSMC in June warned that levels might fall to the bottom end of its US$32 billion to US$36 billion guidance for the year.
While capex cuts are commonly seen as a positive and prudent cost management tool, analysts say the recent reductions signal longer-term bearishness about chip demand and concerns about a protracted recovery.
Goldman Sachs Group Inc recently slashed its estimate for TSMC’s capital spending for next year by more than 20 percent to US$25 billion over concerns the chipmaker may delay its planned overseas capacity expansion. That would be its smallest amount of spending since the beginning of the COVID-19 pandemic.
The 12-month earnings estimate for TSMC has also been revised down by about 8 percent from a high in October last year, Bloomberg data showed, compared with little change in a broader gauge of Asia Pacific stocks.
Part of the issue at hand is the earlier pent-up optimism over TSMC’s cutting-edge three-nanometer chip process. The product, which was put into mass production in December last year, was seen as a technology breakthrough that would revolutionize everything from Apple Inc’s iPhones to Nvidia Corp’s AI generators.
That promise has encountered some setbacks due to weak consumer demand. Earlier this month, TSMC reportedly told major suppliers it had to delay deliveries. Nvidia, Advanced Micro Devices Inc and Qualcomm Inc might even delay their orders for the chips into 2025, JPMorgan said.
Given the lack of demand recovering back to pre-COVID-19 levels amid macro weakness, “we do expect the recovery may take longer,” Citigroup Inc analysts including Laura Chen (陳佳儀) wrote in a recent note.
A number of positives remain for TSMC. Its leadership position in the foundry — or chip manufacturing — market, with a stable share of 59 percent in the second quarter, continues to make the company attractive. That is compared with an 11 percent share for its biggest rival Samsung Electronics Co, Counterpoint Technology Market Research data showed.
Still, until there is a broader economic recovery, traders might largely stay on the sidelines.
Investors might become more cautious on longer-than-expected inventory adjustments at TSMC’s customers, Mizuho Securities Asia Ltd analyst Kevin Wang (王敏力) said.
“We now expect such adjustment to extend into the first quarter next year, or even the second quarter due to soft end-demand,” he added.
TSMC shares closed 0.75 percent lower at NT$529 yesterday, having risen 17.95 percent since the beginning of this year.
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