Taiwan Semiconductor (TSM) Posts Stellar Q1 Results — But Shares Tumble Anyway

Key Takeaways

• Taiwan Semiconductor’s American depositary receipts (TSM) declined 3.1% in after-hours trading despite reaching all-time highs before the earnings release
• First-quarter revenue increased 8% sequentially to NT$1.134 trillion, while gross margin reached 66.2%, surpassing guidance expectations of 63–65%
• Earnings per share of NT$22.08 exceeded analyst projections by 7%
• The chipmaker flagged possible extended supply chain challenges for helium and bromine linked to Middle Eastern geopolitical tensions
• Investment firm Needham increased its TSM price objective to $480 from $410, reaffirming its Buy recommendation

Taiwan Semiconductor Manufacturing (TSM) experienced a 3.1% decline in U.S. markets on Thursday, followed by an additional 2.4% drop in Taipei trading on Friday, as market participants took profits following the stock’s impressive rally leading up to the quarterly report.

Taiwan Semiconductor Manufacturing Company Limited, TSM

Shares had touched a record high of T$2,101.46 on the Taiwan Stock Exchange earlier in the week before reversing course.

TSMC unveiled record first-quarter profitability, with revenue advancing 8% from the previous quarter to NT$1.134 trillion. The company’s gross margin settled at 66.2%, comfortably exceeding its own forecasted range of 63–65%.

Earnings per share registered at NT$22.08, topping Wall Street consensus estimates by 7%.

Looking ahead to the second quarter, executives forecast an 11% sequential revenue gain. This projection significantly outpaces the historical seasonal increase of approximately 6% and surpasses analyst consensus calls for 7–8% growth.

Management attributed the robust outlook to persistent strength in artificial intelligence-related demand, especially for cutting-edge processors deployed in data center applications.

Material Supply Risks Emerge

Notwithstanding the impressive financial performance, TSMC highlighted a concerning development: potential disruptions in the availability of specialized materials, namely helium and bromine, connected to escalating tensions between the U.S.-Israel alliance and Iran.

The regional conflict has interrupted material shipments from Middle Eastern sources to Asian manufacturing hubs, with attacks on industrial facilities causing intermittent production halts.

While TSMC confirmed it has arranged alternative chemical suppliers for immediate needs, the company acknowledged uncertainty surrounding longer-term availability.

Manufacturing Capacity Under Scrutiny

During the earnings conference call, financial analysts questioned CEO C.C. Wei about whether capacity limitations might drive clients to explore competing semiconductor manufacturers.

Wei firmly countered this notion, explaining that establishing independent chipmaking capabilities comparable to TSMC’s scale would require no less than three years and substantial capital commitments.

Earlier industry reports indicated that Nvidia might encounter production delays for its upcoming Vera Rubin AI processor lineup due to constraints at TSMC’s facilities.

The semiconductor giant announced plans to boost capital expenditures in forthcoming quarters to accommodate expanding customer requirements.

Regarding valuation metrics, Needham elevated its TSM price target to $480 from $410 following the quarterly disclosure, maintaining its Buy stance.

GuruFocus calculates TSMC’s intrinsic value at $261.00, suggesting the stock trades approximately 39% above that benchmark at its present price of $363.35.

The company’s price-to-earnings multiple stands at 34x, versus a five-year median of 22.55x.

Insider transaction data from the past three months revealed $819,595 in stock purchases with zero recorded dispositions.

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