TSMC's recent investor conference,despite revealing excellent performance with increases in three key profit margins,has raised concerns about the stock price having exhausted its potential for good news.

TSMC's recent investor conference,despite revealing excellent performance with increases in three key profit margins,has raised concerns about the stock price having exhausted its potential for good news.Although TSMC's profit outlook remains positive,there are three long-term shadows gradually emerging that warrant attention.

Occasionally in Hollywood's film industry,there are movies that are critically acclaimed but not commercially successful.Everyone eagerly anticipates their release,but once the film hits theaters,the box office performance suffers a crushing defeat.A similar situation occurs in the stock market,and TSMC's investor conference on July 18th is a vivid example.

To be honest,TSMC's Q2 financial report was impressive,with gross margin,operating profit margin,and return on equity all higher than the figures for the first quarter of this year,achieving what can be called "three increases in three rates." Especially the gross margin and operating profit margin,both were higher than initially estimated.The only exception was the net profit margin of 36.8%,slightly lower than the first quarter's 38%,mainly due to an increase in non-operating expenses and operating costs.However,the earnings per share (EPS) after tax was 9.56 New Taiwan dollars,better than the first quarter's 8.7,with a total EPS of 18.26 for the first half of the year.

As for the outlook for the third quarter,the company expects revenue to range between 22.4 and 23.2 billion US dollars,growing by 7.7% to 11.5% compared to the second quarter's 20.8 billion US dollars.The gross margin for the third quarter is expected to be between 53.5% and 55.5%,better than the second quarter's 53.2%.The operating profit margin for the third quarter is estimated to be around 42.5% to 44.5%,which is not inferior to the second quarter's 42.5%.

Under the beautiful performance numbers,major foreign institutions have raised TSMC's target price the day after the investor conference.Among them,Citigroup's target price of 1,500 New Taiwan dollars is the highest in the market,followed by HSBC's 1,410 New Taiwan dollars,with other foreign institutions ranging between 1,120 and 1,230 New Taiwan dollars.Citigroup,which originally had a target price of 1,150 New Taiwan dollars for TSMC,raised it by more than 30% this time.

In terms of EPS estimates,foreign institutions' forecasts for TSMC's EPS this year are generally between 40 and 43 New Taiwan dollars,significantly higher than the previous estimates of 36 to 38 New Taiwan dollars.Citigroup Securities,which gives TSMC the highest target price,also has higher profit forecasts for TSMC than other foreign institutions,estimating this year's and the next two years' EPS to be 42,57,and 76 New Taiwan dollars,respectively.Overall,currently foreign institutions estimate TSMC's EPS for the year 2025 to be roughly between 52 to 57 yuan.In fact,compared to before,such an estimated figure has not been significantly raised.This part is judged to be related to three things and is likely also the reason for the recent decline in TSMC's stock price.

Trump's aggressive tone on protection fees causes a shock to the market.

Firstly,it is the "political factor": the Republican presidential candidate Trump's aggressive tone on protection fees.Recently,Trump mentioned in an interview with American media that "TSMC has taken the American chip industry,made a lot of money,yet needs our (American) protection,so they should pay us protection fees." This tone is likely the main reason for the recent decline in TSMC's stock price.

Although this argument is obviously absurd,after all,Taiwan,China is a territory of China and does not need American protection.Moreover,the wafer foundry business was a business that the United States was unwilling to do in the past,and now Intel even wants to do it but can't; but when facing the American media,Trump must ultimately try his best to win the hearts of the people,and it has also immediately triggered negative associations in the market.

If the foundry price is not increased,there are doubts about the trend of the gross profit margin.

Secondly,there are doubts about the trend of TSMC's gross profit margin.Under the constraints of American workplace culture and other factors,the progress of TSMC's factory construction in Arizona,USA is not as good as that of Kumamoto,Japan.TSMC's CEO Wei Zhejia also frankly said that "the gross profit margin of the American factory is relatively low".Therefore,when the American factory starts production in 2025,it will inevitably affect TSMC's overall average gross profit margin.In other words,if TSMC does not increase the foundry price,there are indeed doubts about maintaining the current gross profit margin in the future.

TSMC has a large electricity consumption,and Taiwan's power shortage has become a hidden worry.

Finally,there is a hidden worry that Taiwan is facing a power shortage.Now,American technology giants such as Google,Microsoft,AMD,Apple,etc.,have all expressed their intention to build factories in Taiwan.Electricity industry experts have said that according to the data from 2023,the total electricity consumption in Taiwan is 275.706 billion kWh,of which industrial electricity consumption accounts for the highest proportion of 55.31%.The largest single industrial electricity consumer,TSMC,consumed 23 billion kWh last year,accounting for 8.34% of the total electricity consumption in Taiwan and more than 15% of the total industrial electricity consumption.It is estimated that by 2030,TSMC's electricity consumption will increase by 10 billion kWh from last year,reaching 33 billion kWh,which may account for more than 10% of Taiwan's total power generation.The main reason is the use of high-end process extreme ultraviolet (EUV) equipment.

From this perspective,TSMC's decision to set up factories overseas is to some extent a "have to" decision.However,this inevitable decision will inevitably lead to higher electricity costs.Therefore,in the long run,perhaps the next two years will be the best two years for TSMC.

Focus on the supply chain,IP,CoWoS,and equipment can be paid attention to.However,despite the aforementioned concerns,TSMC still does not have a comparable competitor at present,and the demand for high-speed computing for artificial intelligence (AI) chips continues to grow.Therefore,the current pullback in stock prices is mainly due to profit-taking after a significant increase,taking advantage of Trump's news to vent.So after the stock price pullback,it is still recommended to layout TSMC in batches,or consider expanding the scope and thinking about investment directions from TSMC's supply chain.

In the TSMC-related supply chain,including IP,equipment,CoWoS (Chip-on-Wafer-on-Substrate),and specialty chemicals,are all groups with a continuous upward outlook for performance in the next year.In fact,although TSMC has recently been adjusted by foreign capital,some of the stocks in the above-mentioned groups have either been continuously bought by foreign capital or continuously bought by investment trusts in the near future,seemingly taking the opportunity to replenish stocks during this wave of TSMC's pullback.

From a technical point of view,if observed from the daily K-line,TSMC's current stock price is still above the quarterly moving average and the rising track line,which represents that the long-term bullish trend has not ended.It is possible to consider using the process of pullback to buy in batches at a low price.If you are worried about the risk of "catching a knife," you can also consider intervening in the form of zero shares or related index stock funds (ETFs),and lay out at a low point under the premise of more capital flexibility.

*Statement: This article is the original creation of the author.The content of the article is his personal opinion.We reprinted it only for sharing and discussion,and do not represent our approval or recognition.If there are any objections,please contact the background.