Shares of Taiwan Semiconductor Manufacturing Company Limited
The TSMC Thesis: According to Needham's analysis, TSMC is expected to absorb excess capacity, rebalancing supply and demand by the end of 2024. Shi noted that 2025 could see significant improvements, despite a projected below-trend fab utilization rate in 2024.
The analyst sees a robust 2025 with continued revenue growth and capex recovery.
The decision to transition from 5nm to 3nm processor node tech in the second half of 2024 is linked to TSMC's plan to shift 5nm production from Taiwan to the U.S., with the Arizona plant expected to go online in the first half of 2025, according to management.
"If 5nm demand remains strong, we think there is actually a chance for TSMC to pull the Arizona mass production schedule back into 2024," Shi said.
Despite a cautious stance on calling the end of the automotive inventory correction, the analyst anticipates TSMC's content growth in the auto sector to support automotive revenue growth, independent of the inventory cycle.
While acknowledging that TSMC's earnings might be impacted by depreciation expense growth in 2024, Shi views it as a positive move for the company to restore the supply/demand balance. He highlighted the potential for strong CapEx growth in 2025.
Needham largely maintained revenue estimates beyond the first quarter of 2024, forecasting a 27% growth in U.S. dollar terms for the full year. Shi believes these estimates are achievable as industry fundamentals continue to improve.
"TSMC tends to be conservative on the way up, we think our estimates remain within reach," he said. "We expect TSMC is more likely to beat and raise in an upcycle."
The analyst projected a 20% revenue growth in 2025, even without contributions from 2nm revenue.
The TSMC Price Action: TSMC shares ended Thursday's session up 9.79% to $113.03, according to Benzinga Pro data.
