Taiwan Semiconductor Manufacturing Company (TSM, Financial) remains in positive territory today despite cooling from initial highs over 3%. The company reported strong Q1 results, surpassing top and bottom-line expectations, and provided optimistic Q2 revenue guidance. TSM, a key supplier for tech giants like Apple (AAPL, Financial) and NVIDIA (NVDA, Financial), reaffirmed its FY25 capital budget of $38-42 billion, indicating steady demand despite global economic uncertainties.
Earlier this month, a chart of reciprocal tariffs was released, including a 32% rate on Taiwan, which was temporarily reduced to 10% with a 90-day pause. Without further negotiations, this rate could return to 32%. Additionally, NVDA announced a $5.5 billion inventory write-down due to license restrictions on its chips for China, raising concerns about future revenue from TSM's customers.
Despite these challenges, TSM remains confident in meeting its capital budget and achieving mid-20s percent revenue growth. For Q2, the company projects revenues of $28.4-29.2 billion, exceeding analyst expectations.
- Q1 results: EPS of $2.12 on revenues of $25.53 billion, a 35.3% year-over-year increase. Gross margins contracted by 20 basis points, mainly due to a January earthquake affecting margins by 60 basis points. Investments in fabrication plants outside Taiwan also contributed to margin dilution.
- Last month, TSM announced a $100 billion investment in the U.S., initially expected to impact margins by 2-3%, now slightly widening to 3-4% due to inflationary costs and potential tariff impacts.
- Tariffs remain a concern, but management has not observed changes in customer behavior, maintaining confidence in its FY25 revenue outlook. A clearer picture may emerge in the coming months as TSM focuses on business fundamentals and demand tailwinds.
- AI demand is a significant tailwind. TSM expects AI-related revenue, including AI GPUs, AI ASICs, and high-bandwidth memory controllers, to double year-over-year in 2025.
The robust AI demand may help TSM recover from a 20% year-to-date sell-off, but challenges such as increased margin dilution and uncertain trade policies could hinder a swift recovery. While TSM has issued optimistic guidance for Q2 and FY25, the fluid tariff stance contributes to investor anxiety, affecting confidence in TSM's ability to meet forecasts. Consequently, shares are struggling to maintain gains, possibly indicating future stock movements.
