Taiwan Semiconductor Manufacturing Company Ltd. (NYSE:TSM) is sharply increasing equipment purchases and factory construction as booming artificial intelligence demand pushes the world’s largest contract chipmaker to expand capacity at an unprecedented pace.
Taiwan Semiconductor Nearly Doubles Equipment Purchase Estimate
The contract chipmaker has raised its estimate for quarterly chipmaking equipment purchases to about 1.9 times the level it projected in December, Deputy Co-COO Cliff Hou said during a fireside chat at Semicon Taiwan.
The increase reflects surging demand from AI developers and the global expansion of data centers, which continue to drive customers toward more advanced chips, Bloomberg reported on Wednesday.
Taiwan Semiconductor is simultaneously working to build and equip about 20 factories in Taiwan and overseas. Historically, the company typically worked on only four or five new buildings at the same time.
The expansion has also created challenges. Taiwan Semiconductor faces a shortage of experienced construction workers in Taiwan as it accelerates factory development.
“Right now you’re almost 4x or 5x, trying to catch up, but still you cannot meet demand,” Hou said.
NVIDIA, AMD Orders Keep Capacity Tight
Taiwan Semiconductor CEO C.C. Wei has said the company will continue working into next year to narrow the gap between chip supply and customer demand.
Major customers including NVIDIA Corp. (NASDAQ:NVDA) and Advanced Micro Devices Inc. (NASDAQ:AMD) continue increasing orders, adding pressure on Taiwan Semiconductor’s manufacturing capacity.
NVIDIA relies exclusively on Taiwan Semiconductor to manufacture its most advanced AI accelerators. NVIDIA recently projected that its sales, already approaching $100 billion per quarter, would grow 70% next year.
MediaTek CEO Highlights Capacity Crunch
The tight supply environment is also affecting other major chip designers.
MediaTek Inc. CEO Rick Tsai underscored the industry’s capacity constraints during the same session, opening his remarks with a direct request to Hou.
“Cliff, can I get more capacity?” Tsai said.
The comments from Hou, Wei and Tsai highlight the scale of the current imbalance, with Taiwan Semiconductor ramping equipment purchases and factory construction while customers continue pressing for additional production capacity.
Taiwan Semiconductor Stock Performance And Technical Analysis
Taiwan Semiconductor stock rose nearly 1% in Friday premarket trading as semiconductor stocks gained alongside U.S. index futures. Nasdaq futures climbed 0.55%, while S&P 500 futures edged 0.10% higher.
The stock also remains within its longer-term uptrend. Traders are watching nearby technical levels for signs of the next move.
Taiwan Semiconductor is hovering near its short-term moving averages. The stock is about 0.3% above its 20-day simple moving average of $419.49 and roughly 0.1% above its 50-day SMA of $420.53.
The longer-term trend remains bullish. Shares are about 13.1% above the 200-day SMA of $372.10.
Momentum remains neutral. The relative strength index stands at 49.34, suggesting the stock is neither overbought nor oversold.
The 20-day SMA remains below the 50-day SMA, signaling some short-term weakness. However, the 50-day SMA is still above the 200-day SMA, supporting the longer-term bullish trend.
Traders are watching resistance near $429.50. A break above that level could put the June highs back in focus.
Support sits near $405.50, where buyers previously stepped in. A move below that level could weaken the short-term technical picture.
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Analyst Outlook
The stock trades at a price-to-earnings ratio of about 30.9, reflecting a premium valuation. Analysts have a consensus Buy rating and an average price forecast of $547.38.
Stifel initiated coverage Wednesday with a Buy rating and a $515 price forecast. Bernstein maintained an Outperform rating Aug. 11 and raised its forecast to $554. Needham maintained a Buy rating on July 27 and lifted its forecast to $530.
Taiwan Semiconductor Benzinga Edge Rankings
Benzinga Edge gives Taiwan Semiconductor strong scores for momentum, quality and growth.
The stock has a Momentum score of 87.94, a Quality score of 97.24 and a Growth score of 88.95. Its Value score is lower at 31.08.
The rankings point to strong momentum and growth backed by high business quality. However, the lower Value score suggests investors are already paying a premium for those strengths.
Top ETF Exposure
The VanEck Semiconductor ETF (NASDAQ:SMH) has a 9.28% weighting in Taiwan Semiconductor. The Harbor International Compounders ETF (NYSE:OSEA) has a 6.77% weighting, while the Brown Advisory Flexible Equity ETF (NASDAQ:BAFE) has a 5.96% weighting.
Taiwan Semiconductor’s sizable weighting means flows into or out of these funds can affect demand for its shares.
Taiwan Semiconductor Price Action
TSM Price Action: Taiwan Semiconductor shares rose 0.91% to $420.80 in Friday premarket trading, according to Benzinga Pro.
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