Taiwan Semiconductor Posts Record Q3 Results: Time to Buy the Dip?

The recent selloff in technology and semiconductor stocks has created potential buying opportunities, particularly among companies benefiting from the artificial intelligence (AI) infrastructure boom.

Taiwan Semiconductor Manufacturing Company TSM) stands out after delivering better-than-expected third-quarter results on Thursday and issuing upbeat Q4 guidance, reinforcing its position as a leading supplier of advanced chips.

With strong earnings momentum and a favorable growth outlook, TSM may be an attractive stock to consider following the recent market pullback as shares have fallen 9% this month but are still up 36% year to date.

Taiwan Semiconductor’s Record Q3 Results

Fueled by surging demand for advanced chips used in AI infrastructure, Taiwan Semiconductor’s Q3 earnings reached a quarterly record of $4.60 per share, beating the Zacks Consensus Estimate of $4.45 by 3% and climbing 57% from EPS of $2.92 a year ago.

This came as Q3 revenue surged 41% year over year to a quarterly peak of $46.72 billion, surpassing expectations of $45.61 billion. Gross margin remained robust at 66.4%, while operating margin reached 58.7%.

Notably, advanced semiconductor technologies accounted for 79% of wafer revenue, reflecting strong demand from major customers such as Nvidia NVDA), Apple AAPL), and Advanced Micro Devices AMD).

It’s also noteworthy that Taiwan Semiconductor has now exceeded earnings expectations for a remarkable 24 consecutive quarters, with an average EPS surprise of 7.78% in its last four quarterly reports.

Taiwan Semi’s Favorable Guidance

Looking ahead, TSMC projected Q4 revenue of $52.3-$54.3 billion, implying 58% YoY growth at the midpoint and comfortably exceeding Wall Street's expectations of roughly $50.22 billion.

The company also anticipates gross margins of 65%-67%, signaling continued profitability as it expands production of next-generation chips.

Monitoring TSM’s Valuation

At current levels of around $412 a share, TSM trades at 25X forward earnings, representing only a modest premium to the benchmark S&P 500 and the broader Zacks Computer and Technology sector's 23X.

Considering Taiwan Semiconductor is the world's largest dedicated semiconductor foundry provider and a critical supplier to leading AI chipmakers, this valuation still appears reasonable given its impressive earnings growth and favorable outlook.

Bottom Line

Despite recent selling pressure across semiconductor stocks, Taiwan Semiconductor's Q3 earnings beat and upbeat Q4 guidance reinforce its position as a leading beneficiary of the AI infrastructure boom.

With accelerating demand for advanced chips and encouraging growth prospects, TSM currently sports a Zacks Rank #2 (Buy), supported by favorable earnings estimate revisions that could gain further momentum following its impressive Q3 report.

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This article originally published on Zacks Investment Research (zacks.com).

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