Taiwan Semiconductor Manufacturing Company A.K.A TSMC ($TSM) Pre-earnings Analysis
All eyes are on the semiconductor industry this week as TSMC, the world’s most advanced chipmaker, gets ready to report quarterly earnings. As the key supplier behind Nvidia’s and AMD’s cutting edge chips, TSMC’s results often set the tone for the entire tech sector, and could offer insight into where AI-driven demand is headed next.
In case you don’t know, TSMC produces roughly 60% of the world’s total semiconductor chips and over 90% of global advanced chips. Yes, companies like Apple, Nvidia, AMD, and Qualcomm design their own chips, but it’s TSMC that actually manufactures them. That makes TSMC’s earnings crucial, as they serve as a real time reflection of global demand for computing power, artificial intelligence, and consumer electronics. When TSMC’s order books grow, it usually signals expanding momentum across the tech sector, and when they slow, it’s often one of the first warning signs that demand is cooling.
As far as demand, there’s no sign of slowing. TSMC reported 35% and 45% revenue growth in Q1 and Q2 of this year so far, and net income has grown even faster at 53% and 68%. These numbers are groundbreaking given that TSMC is not an early stage company by any means. Their revenue growth brought them to $30 billion last quarter, $12.9 billion of that was pure net income. Their balance sheet is even more impressive, reflecting $240 billion in assets and $82 billion in liabilities, leaving them with $158 billion in positive equity. Finally, free cash flow is rising, reaching $31.25 billion TTM.
New initiatives:
One of the biggest threats TSMC faces is China. China’s constant threats to Taiwan leaves them vulnerable to attacks on their manufacturing base, but they are working to alleviate the threat. The company is aggressively expanding capacity with plans for nine new facilities in 2025, including eight new fabrication plants (fabs) and an advanced packaging plant. These new plants are planned in the U.S., Japan, and Germany, which will help diversify global supply chain and meet customer security requirements.
The semiconductor demand cycle:
Semiconductors have historically been cyclical, and right now we’re witnessing a very intense cycle of demand that’s expected to continue for the coming years. Nvidia’s new chip is set to add billions in revenue starting next year, and TSMC is set to be the manufacturer behind the chip. This isn’t an isolated win, TSMC’s dominance in advanced nodes (3nm and 2nm) positions it at the center of the AI revolution, where demand for high performance computing, data centers, and edge devices is surging. Even Jensen Huang called TSMC and solid investment, recognizing the value it brings to the artificial intelligence world.
Looking ahead:
TSMC is set to finish this year with around $123 billion in revenue, marking a 40% growth from last year. That’s already impressive, but looking ahead, the numbers are set to be even more astonishing. The company’s revenue is set to reach $195 billion by 2028, and net income is expected to nearly triple. This explains why investors are still willing to pay a premium for the stock now with a price to earnings ratio of 34x. As long as there’s AI chip demand, which is not showing any signs of slowing down, TSMC is set to be a leader just as important as Nvidia and AMD in the space.
Option chain analysis:
Looking at its option chain, $TSM’s October 17th expiration currently reflects an implied volatility reading of 86%, which translates to about a (+/-) $21 move from the underlying stock by expiration. The direction largely depends on the outcome of their earnings and what’s said on the call.