Will TSM.US (TSM.US) become a “lifesaver” for the AI chip market after Asmack's performance exploded?

The Zhitong Finance App learned that TSM.US stock price recently rebounded to a record high, but this rise is facing a critical test. After the tornado in ASML.US (ASML.US) performance triggered a decline in global chip stocks, the market's eyes turned to TSMC's earnings report scheduled to be released on Thursday.

As market concerns about Nvidia (NVDA.US)'s latest artificial intelligence (AI) products have abated, while optimism about Apple's (AAPL.US) iPhone has once again won the favor of investors. TSMC's shares listed in the US have risen 30% from their August low, hitting a new high.

Taiwan Semiconductor Manufacturing Company (TSM.US) stock price rebounded to a new high before performance

Market observers say strong performance guidance could once again boost the company's stock price after artificial intelligence drove TSMC's initial sales performance in the latest quarter beyond expectations. TSMC's comments on demand will be closely watched, especially after Asmack lowered performance expectations in fields other than artificial intelligence, triggering a decline in global chip stocks.

Kevin Net, head of Asian equities at Financiere de L Echiquier, said that strong guidance and potential comments on 2025 demand “may drive up stock prices.” TSMC's capital expenditure may “eventually reach the upper end of the guideline range, about 32 billion US dollars,” indicating a strong outlook.

Just a few months ago, investors were selling off AI stocks, fearing that the technology would not be able to meet high profit expectations. Since this year, market expectations for TSMC's earnings per share have risen 37%, reaching an all-time high.

TSMC's third-quarter earnings report is expected to show that profitability is indeed improving. Analysts expect gross margin to reach 54.8%, the highest level in six quarters.

After TSMC raised its sales growth target in July, the company's full-year forecast will receive particular attention. Gary Tan, portfolio manager at Allspring Global Investments, said that the increase in production capacity of Nvidia Blackwell chips and the progress of TSMC's advanced packaging capacity expansion are the focus of attention.

Although the weak outlook for lithography giant Asmack has once again raised concerns about the entire industry, TSMC is seen as more resilient than Asmack. Asmack is TSMC's main equipment supplier. Analysts said TSMC's long-term outlook should not be affected, as the long-term outlook depends on demand for high-end chips to train and host artificial intelligence models.

“Artificial intelligence continues to be a driver of TSMC's fundamentals and valuations,” Nomura analysts including Aaron Zheng said last week. Any negative impact from non-AI businesses is limited, “because supply chain construction is already cautious, we expect a more significant cyclical rebound by 2025.”

In addition to fundamental factors, some market observers also warned against geopolitical concerns before the US election. To hedge against geopolitical risks, TSMC is spending tens of billions of dollars to establish new production sites in the US, Japan, and Germany.

The market generally expects TSMC's US stock to rise 16% over the next 12 months. The valuation is low, and its expected price-earnings ratio for American Depositary Shares is 23 times, compared to a peak of 34 times in 2021.

By the close of the US stock market on Wednesday, TSMC rose slightly by 0.19%, and fell 2.6% the day before due to news from Asmack.