Taiwan Semiconductor Stock Poised For Breakout After Earnings Beat

Taiwan Semiconductor Manufacturing (TSM), the world’s largest chip foundry, on Thursday beat analyst estimates for the fourth quarter. TSM stock popped higher in early trading.


Taiwan Semi earned $1.15 per U.S. share in the December quarter, up 19% from the year-earlier period. Analysts expected earnings of $1.12 a share, according to FactSet. The company’s sales increased 24% to $15.74 billion, also topping views.

For the current quarter, Taiwan Semi expects to generate revenue of $16.6 billion to $17.2 billion. The midpoint of $16.9 billion topped the consensus estimate of $15.7 billion.

In premarket trading on the stock market today, TSM stock jumped 4%, near 137.50. Over the past 48 weeks, TSM stock has formed a cup-with-handle base with a buy point of 135.60, according to IBD MarketSmith charts. A weekly MarketSmith chart shows a secondary buy point of 142.29 in a saucer base.

Sales Driven By Industry-Leading Chips

Taiwan Semi makes chips for fabless semiconductor firms such as Apple (AAPL), AMD (AMD), Nvidia (NVDA) and Qualcomm (QCOM).

“Our fourth-quarter business was supported by strong demand for our industry-leading 5-nanometer technology,” Chief Financial Officer Wendell Huang said in a news release. “Moving into first quarter 2022, we expect our business to be supported by HPC (high-performance computing) related demand, continued recovery in the automotive segment, and a milder smartphone seasonality than in recent years.”

In the fourth quarter, shipments of 5-nanometer chips accounted for 23% of total wafer revenue. Meanwhile, 7-nanometer chips accounted for 27% of wafer revenue. Circuit widths on chips are measured in nanometers, which are one-billionth of a meter.

Smartphone chips accounted for 44% of Taiwan Semi’s revenue in the December quarter. High-performance computing chips made up 37% of revenue in the period.

TSM Stock In Highly Rated Industry Group

Taiwan Semi plans to spend $40 billion to $44 billion in 2022 to expand and upgrade its production capacity amid a global chip shortage. In 2021, it spent $30.04 billion on capital expenditures.

The heightened spending on semiconductor equipment is positive news for chip-gear makers such as ASML (ASML), Applied Materials (AMAT) and Lam Research (LRCX).

TSM stock ranks eighth out of 40 stocks in IBD’s semiconductor manufacturing industry group. It has an IBD Composite Rating of 97 out of 99, according to IBD Stock Checkup. The Composite Rating scores a stock’s key growth metrics against all other stocks regardless of industry group.

The chipmaking group ranks No. 12 out of 197 industry groups that IBD tracks. Choosing highly rated stocks from leading industry groups in a confirmed stock market uptrend generally increases your chances of making profits in growth stocks.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.


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