Taiwan Semiconductor Manufacturing, the world's largest contract chipmaker, on Thursday handily beat estimates for the third quarter and with its guidance for the current period. TSM stock jumped on the news.
The chip foundry, better known as TSMC, earned $1.94 per U.S. share on sales of $23.5 billion in the September quarter. Analysts polled by FactSet had expected earnings of $1.79 a share on sales of $23.31 billion. On a year-over-year basis, TSMC earnings rose 54% while sales increased 39%.
For the current quarter, TSMC expects revenue of $26.1 billion to $26.9 billion. The midpoint of $26.5 billion topped Wall Street's target of $24.9 billion. In the year-ago period, it posted sales of $19.8 billion.
On the stock market today, TSM stock surged 9.8% higher to close at 205.84.
"Our business in the third quarter was supported by strong smartphone and AI-related demand for our industry-leading 3-nanometer and 5-nanometer technologies," Chief Financial Officer Wendell Huang said in a news release.
He added, "Moving into fourth quarter 2024, we expect our business to continue to be supported by strong demand for our leading-edge process technologies."
TSM Stock Is A Recent Breakout
In the third quarter, shipments of 3-nanometer chips accounted for 20% of TSMC's total wafer revenue; 5-nanometer accounted for 32%; and 7-nanometer made up 17%. Advanced technologies, defined as 7-nanometer and smaller nodes, accounted for 69% of total wafer revenue.
Circuit widths on chips are measured in nanometers, which are one-billionth of a meter.
TSMC's customers include top fabless semiconductor firms such as Apple, AMD, Broadcom, Nvidia and Qualcomm. TSMC's upbeat report boosted shares of Nvidia, Broadcom and others.
On Sept. 19, TSM stock broke out of a cup-with-handle base at a buy point of 175.45, according to IBD MarketSurge charts. As of Wednesday's close, it was extended beyond the 5% buy zone, based on IBD trading guidelines.
Analysts React To TSMC's 'Blowout' Quarter
Needham analyst Charles Shi said TSMC delivered a "blowout" quarter and guidance. He rates TSM stock as buy with a price target of 210.
"TSMC expects to more than triple AI revenue this year, which will account for (a) mid-teens percent of TSMC's total revenue," Shi said in a client note. "Based on management commentary, we estimate TSMC's AI revenue was around $4 billion last year, and will likely reach $13 billion this year."
Further, TSMC predicted that AI chips will account for about 20% of its total revenue by 2028, Shi said.
Bernstein analyst Mark Li reiterated his outperform rating on TSM stock.
"Near-term results and guide are a clean beat," he said in a client note. "We find comfort in TSMC as technology, efficiency, and trust ensure long-term growth."
Chipmaker's Comically Good Guidance
Mizuho Securities trading-desk analyst Jordan Klein said TSMC's fourth-quarter guidance "is so good it's comical."
The "fact that Intel and Samsung are losing share and falling further behind TSMC in leading-edge node technology makes the competitive positioning even that much better," Klein said in a client note.
TSMC could be the most "strategically valuable company on the planet," he said. "You cannot get any Nvidia, Broadcom, AMD, Qualcomm, Arm or Apple chips without TSMC."
TSM stock is on two IBD stock lists: Global Leaders and Tech Leaders.
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