Taiwan Semiconductor Q2 Earnings: High Utilization Rate Could Boost Gross Margin
Summary
- TSM exceeded revenue and GAAP EPS expectations in 2Q FY2024, despite a muted stock reaction due to a broad-based pullback in the semiconductor sector.
- Management provided a strong growth outlook driven by increasing AI demand, with continued margin expansion and a long-term goal of approaching 60% in gross margin.
- While the start of production at two overseas fabs next year is expected to impact gross margins by 2-3%, the recent high-NA EUV deal with ASML should improve utilization rates.
- Although stricter chip curbs on China and Trump's stance on repatriating the chip business pose a tail risk for TSM, I do not think this risk is predictable or likely.
- The stock's valuation multiple has become more attractive after the recent selloff, with a non-GAAP forward P/E of 25.5x and a non-GAAP forward PEG of 0.96x, both below the sector.
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