Needham analyst Charles Shi reiterated Buy on Taiwan Semiconductor Manufacturing Company LtdTSM with a $110 price target.
Shi maintained TSMC on Needham’s Conviction List and named it Top Pick for 2023.
The analyst reduced the 2023 growth estimate to 5% from the last 10%, reflecting 7nm underutilization.
Shi believes the industry’s wafer shipment will decline by 10% in 2023 and bottom between 2Q23 and 3Q23.
The analyst said 2Q23 would mark the bottom for the foundry sector from a volume perspective. TSMC’s wafer shipments may also bottom in 2Q23, but revenue should bottom ahead of volume in 1Q23.
Shi expects TSMC’s CapEx to decrease as the spending mix shifts from capacity additions and equipment purchases to infrastructure spending and new fab construction this year.
The industry upcycle will return in 2024, the foundry will gain a share of industry wafer output through the 2023 downturn, and TSMC will see structural pricing growth thanks to the increasing contribution of advanced nodes such as 5nm and 3nm.
The analyst estimates TSMC’s 2024 revenue will grow 30% (in USD terms) and surpass the $100 billion mark. TSMC could guide to $40 billion of CapEx in 2024, accounting for all significant fab projects known to Shi today.
The buy-side expected TSMC to guide 2023 growth between -5% and +5%, with Asia investors primarily expecting a lower number than U.S. investors.
TSMC is more likely to surprise the Street to the upside, making the 4Q22 call one of the more favorable ones in recent earnings history.
Soon after the 4Q22 call, the attention of the Street will move to 2024, and a strong 2024 outlook from the company will improve sentiment on the stock and support share price gains.
Price Action: TSM shares traded higher by 3.72% at $80.98 on the last check Monday.
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