Why Taiwanese semiconductor manufacturing stocks exploded on Tuesday

Taiwan semiconductor manufacturing industry (TSM 2.09%) The stock was up 2.1% as of 2 PM ET on Tuesday. To my hometown daily newspaper DigiTimes I reported it this morning, intel It tapped TSMC to manufacture a new line of 3nm semiconductor chips for laptop computers.

Moreover, chip production has already begun.

Impact on Intel and TSMC

This seems to be good news for both Intel and TSMC. In a related article last May, DigiTimes TSMC has already achieved a 95% “utilization rate” in 3nm chip production, meaning production capacity is nearly at maximum. It may be time for Intel to sign a deal to supply 3nm chips of its own design.

But for TSMC, this news may be even better. If production capacity was at 95% a month ago, signing a large customer like Intel will push utilization closer to 100% by now. This ultimately means that TSMC is getting every penny’s worth from the manufacturing equipment it has installed and is probably operating at very high efficiency, which means strong profit margins.

But beyond that, demand for 3nm chips is so high that one has to assume TSMC has strong pricing power for its services. stronger profit.

Is TSMC stock a buy?

actually another DigiTimes A story from last weekend seems to confirm that this is what’s happening, and that semiconductor chip customers are “preparing for future price hikes from TSMC.”

TSMC has suffered three consecutive quarters of declining gross profit margins since the end of 2022, but margins have stabilized somewhat over the past three quarters, according to data from S&P Global Market Intelligence. Now it looks like they may be back.

At 28.5x trailing earnings, you wouldn’t exactly call TSMC a “cheap stock.” However, long-term estimates show revenue growing nearly 21% per year. With even faster growth rates expected this year and next, now may be a good time to buy TSMC stock.