TSMC's Good News Meets Stock Price Stagnation: The Reason Revealed

Taiwan Semiconductor Manufacturing Co. (TSMC) recently announced impressive financial results, with July revenue surging nearly 45% year-over-year and cumulative revenue for the first seven months reaching NT$2.87 trillion. Demand for AI-related products shows no signs of slowing down. However, the company's stock performance has diverged from its strong fundamentals. TSMC's American depositary receipts (ADRs) remain below their 52-week high, and notably, the stock price dipped on the day the strong revenue figures were released.

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The market is now facing a seemingly contradictory situation: TSMC itself has not encountered major problems, and the market is truly beginning to worry whether the stock price has already reflected too many positive factors.

Investors are grappling with a seemingly contradictory situation. While TSMC itself faces no significant internal issues, the market is increasingly questioning whether the current stock price has already fully reflected the positive outlook. TSMC commands approximately 70% of the global advanced chip-making market, producing critical components for tech giants like Apple and NVIDIA. This dominant market position is unlikely to change soon. The core concern now revolves around how much of this competitive advantage is already priced into the stock.

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TSMC currently holds about 70% of the global advanced wafer foundry market, and its wafer fabs produce major tech products such as Apple's mobile processors and NVIDIA's AI accelerators.

Even with stellar financial reports, the impact of good news can be muted when a stock's price is already trading at a significant premium to its estimated fair value. This was observed after TSMC's second-quarter earnings report. Despite a slight miss on earnings per share, revenue growth was strong. The market appears to be re-evaluating TSMC's valuation, shifting from a highly optimistic sentiment to a more cautious stance.

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The Arizona plant's revenue reached NT$45 billion in the second quarter, a year-on-year increase of as much as 145%. Although it currently accounts for only about 4% of the company's total revenue, the trend of high growth is difficult to ignore.

TSMC's global expansion, particularly its operations in Arizona, is a new focal point. Analysts maintain a "buy" rating, viewing the Arizona facility as a new growth engine. While currently contributing a small portion to total revenue, its rapid growth is undeniable. The company's board has approved an additional $29 billion in U.S. capital expenditure, with Wall Street projecting substantial capital spending through 2027. However, this aggressive expansion brings cost pressures, including rising depreciation expenses, which could impact profit margins. Additionally, potential competition in advanced packaging, specifically from Intel's emerging technologies, poses a future challenge, though TSMC's current lead in maturity, customer relationships, and scale remains significant.

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The biggest problem is still 'valuation'. TSMC's current price-to-earnings ratio is about 30 times. Considering the company's growth and competitive advantages, it cannot be considered 'outrageously expensive'. But the problem is that the market no longer has much room for disappointment.