TSMC: Demand Outlook Offsets Likely Peak In Gross Margins (Archive)

This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.

Elevator Pitch

• TSMC is set to increase FY25 capex by 34%. This is a very healthy demand signal, driven by aggressive AI-related spending and augmented by the N2 process node's ramp.
• TSMC may be at peak gross margins as dilution is expected from the ramp-up of additional capacity. But there are structural improvements too, driven by productivity and utilization increases.
• TSMC's discount vs peers has widened a little bit from what it was a few days before the Q4 FY24 earnings release.
• TSM vs SPX500 maintains a bullish structure and there are no signs of sellers despite being near a multi-quarter resistance level.
• Management's abilities to improve the estimated 5-10% gross margins of overseas fabs and elevate the lower-than-company-average margin profile of its advanced packaging facilities are a key risk monitorable.

Read the full article here.