Chipmaker Taiwan Semiconductor Manufacturing (TSM) recently reclaimed the round $100 level, along with its 20-month moving average. Reclamations of the latter favor that the stock price will be higher by the end of 2024, as tests have proven to be buying opportunities in the past, says Matthew Timpane, editor at Schaeffer’s Investment Research.
The TSM/SPY ratio also crossed above its 200-day moving average, and if this trend holds and turns higher, TSM has shown a history of running longer-term. Seasonally, TSM enters a bullish period for price action to start the year, and in the last three election years, the stock has appreciated by 25% or more.
A dominant player in Artificial Intelligence (AI), it shouldn’t be undervalued due to geopolitics, as there are signs that US and China tensions are cooling. A weaker dollar could be a positive going forward if three interest rate cuts materialize like they’re expected to in 2024.
Furthermore, TSM’s valuation has moderated substantially since it’s huge run in 2021. The price to sales ratio was recently 7.64 and below its five-year average of 8.49 even as the company is entering a long-term growth opportunity built on AI, 5G, EVs, and High-Performance Computing.
Moreover, there is potential for expansion of Intel wafer outsourcing due to high demand. Expectations are also that smartphone demand will stabilize, plus PC server growth will resume due to AI demand. These fundamental drivers boost expected revenue growth to 19.5% and EPS growth to 20.9% for 2024.
There has been significant put open interest buildup residing at $95 that could be traded against alongside a stack down to $80, potential support in the event of a significant selloff. On top of that, we saw large option traders target the out-of-the-money June 2024 $115-strike aggressively as we headed into the new year. That indicates they expect to see another big year from the world’s largest semiconductor foundry.