Why Taiwan Semiconductor Stock Soared This Week

Shares in Taiwan Semiconductor Manufacturing (TSM 9.79%) rose 11.7% in the week to the close of trading on Thursday, according to data provided by S&P Global Market Intelligence. The overwhelming bulk of the move came after an excellent set of earnings delivered before the opening of trading on Thursday.

Taiwan Semiconductor sets the tone

Investors closely follow the semiconductor sector because it tends to be “early cyclical.” When manufacturers and other chip customers are preparing to ramp up production in anticipation of future growth, the first thing they do is order more semiconductors. And since semiconductor companies discuss this with customers, the chip companies tend to have an early read on the economy’s direction.

As such, investors would have taken heart from management’s guidance and commentary on the earnings call.

I have a few points of note:

  • First-quarter revenue guidance of $18 billion to $18.8 billion implies a 10% increase over the $16.72 billion reported in the first quarter of 2023.
  • Management believes full-year 2024 revenue will increase by a low-to-mid-20% rate in dollar terms.
  • Management’s capital spending outlook for $28 billion to $32 billion is relatively bullish.

Image source: Getty Images.

Taiwan Semiconductor’s capital spending

I want to focus on the capital spending forecast. Although the midpoint of the forecast ($30 billion) is comparable to the $30.4 billion spent in 2023, it’s still a relatively high figure. As the chart below demonstrates, Taiwan Semiconductor has ramped up capital spending to support its customers’ growth in recent years.

As such, this year’s revenue and capital spending forecasts affirm that the company and industry are back in growth mode.

TSM Capital Expenditures (TTM) Chart

TSM Capital Expenditures (TTM) data by YCharts

What’s next for Taiwan Semiconductor?

Company and industry followers alike will hope the company meets its first-quarter numbers and maintains its capital spending forecast. If so, the rest of the economy will likely follow the chip industry in picking up its growth rate. That’s something to look out for in 2024.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

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