Stock has erased $77 billion of market cap since June high
Sluggish electronics demand, delays weighing on chipmaker
TSMC’s stock has lost more value than any other in Asia since mid-June as investors brace for prolonged weakness in the chip sector. The rout may not be over.
Since its June high, TSMC shares have fallen 10%, erasing $72B from its market cap due to worries about the macro environment and soft global consumer electronics demand. A continued rise in the volatility skew in recent months as traders bid up bearish contracts is indicating a further drop in TSMC’s stock.
Shares of the world’s largest contract chipmaker jumped 60% between October and June thanks to the global frenzy over everything related to artificial intelligence. But traders have turned more wary about just how much that will contribute to the bottom line, especially without a pickup in the smartphone and personal-computer business. Even high-end AI chip orders have slowed at a faster pace than expected.
For JPMorgan Chase & Co., all this means a slower recovery for TSMC going into 2024, given the softness in most end markets like PCs, smartphone and non-AI services, analysts including Gokul Hariharan wrote in a recent note. “With a murky macro outlook, we expect 1H 24 orders to remain sluggish.”
Meanwhile, analysts are also turning wary about capital spending, given that TSMC in June warned levels may fall to the bottom end of its $32 to $36B guidance for the year. Bloomberg-compiled estimates average closer to $30B. While capex cuts are commonly seen as a positive and prudent cost management tool, analysts say the recent reductions signal longer-term bearishness about chip demand and concerns about a protracted recovery.
Goldman Sachs Group Inc. recently slashed its estimate for TSMC’s capital spending for next year by more than 20% to $25B over concerns the chipmaker may delay its planned overseas capacity expansion. That would be its smallest amount of spending since the beginning of the pandemic.
Part of the issue at hand is the earlier pent-up optimism over TSMC’s cutting-edge 3-nanometer chip. The product, which was put into mass production in December, was seen as a technology breakthrough that would revolutionize everything from Apple Inc.’s iPhones to Nvidia Corp.’s AI generators.
But that promise has encountered some setbacks due to weak consumer demand. Earlier this month, TSMC reportedly told major suppliers it had to delay deliveries. Nvidia, [AMD], and Qualcomm may even delay their orders for the chips into 2025, according to JPMorgan.
Given the lack of demand recovering back to pre-Covid levels amid macro weakness, “we do expect the recovery may take longer,” Citigroup Inc. analysts including Laura Chen wrote in a recent note.
There are still a number of positives for TSMC, however. Its leadership position in the foundry — or chip manufacturing — market, with a stable share of 59% in the second quarter, continues to make the company attractive.
TSMC’s $72 Billion Rout Has Market Bracing for More
Taiwan Semiconductor Manufacturing Co.’s stock has lost more value than any other in Asia since mid-June as investors brace for prolonged weakness in the chip sector. The rout may not be over.
www.bloomberg.com