Taiwan Semiconductor’s August sales hint Q3 could beat guidance:J.P. Morgan

J.P. Morgan said that Taiwan Semiconductor Manufacturing’s (NYSE:TSM) strong sales in August suggest that the third quarter could beat guidance.

The firm kept its Overweight rating on the stock with a NT$1200 price target.

September revenues are likely to remain flattish or grow slightly month-over-month, helped by the ramp for iPhone processors and continued strength in N3/N5 demand, said analysts led by Gokul Hariharan.

August sales for TSM — which produces chips for some of the world’s largest tech companies including Apple (AAPL), Nvidia (NVDA) and AMD (AMD) — grew about 33% year-over-year to NT$250.87B, and reached 68% of JPM’s estimates for the third quarter of 2024.

The analysts believe that TSM’s third quarter 2024 revenues could slightly exceed the high-end of its guidance range, due to strong N3 (the 3nm process technology) demand, continued demand for N5 from AI accelerators and other High-Performance Computing, or HPC, products.

The analysts expect the fourth quarter to see a healthy 10% quarter-over-quarter growth as well, helped by continued iPhone processor demand and new Android SoC launches from Qualcomm and Mediatek helping to steer further upside in N3.

Hariharan and his team remain positive on the stock and expect Street consensus to continue to be revised up in the next 12 months due to better revenue momentum and upside in gross margins due to price hikes and better N3 yields.

In addition, the analysts said that recent media reports have suggested that Intel (INTC) could outsource all products below 3nm to TSM, however, they do not believe this to be the base case, as Intel is still continuing its 18A and 14A development path.

However, the near-term share of outsourcing to TSM (within Intel’s wafer demand) could indeed be higher, due to higher prominence for Lunarlake within Intel’s PC portfolio and the recent decision to not ramp 20A, which means Arrowlake is also likely to rely heavily on TSM.

The analysts believe that the Intel Foundry total addressable market, or TAM, is not that big (about $15B and remaining flattish), with TSM already having a 30% to 40% share of this pie by 2025. Thus, the analysts think the incremental revenue opportunity is unlikely to be that big, even if Intel were to outsource everything to TSM.

TSM has a Strong Buy rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors’ average rating is Buy and the average Wall Street analysts’ rating is Strong Buy.