TSMC Stock (NYSE: TSM) Finds Support at $170, What Comes Next?

Taiwan Semiconductor Manufacturing Company (TSMC), the world's leading chipmaker, has had a smoother start to the year than many of it's peers, yet the picture remains blurred. Recent market performance paints a picture of a short-term bounce battling against YTD declines, leaving investors to decipher mixed signals.

A deeper dive into the fundamentals and industry trends continues to look bullish, with the continued artificial intelligence (AI) revolution and TSMC's dominance in advanced chip technology helping cement the company's place in tech's development.

From a technical standpoint, TSMC's stock (NYSE: TSM) has bounced once again off the $170 level, recapturing $180 as the bounce from recent lows moves above 5%. Much of the gains have been seen through the past 5 trading sessions, yet this positive momentum is overshadowed by a ~20% drop over the past two months. Longer term, the stock has been a clear beneficiary of the AI trade, with gains of 30% on the 1 year, and 285% over 5 years placing perma-bulls in a strong position. But what comes next?

Despite this apparent uncertainty, a powerful bullish narrative remains within the analyst community. The overwhelming consensus among Wall Street analysts is a “buy” recommendation, with a 12-month average price target of $247.07, representing a substantial 37% potential upside. Atypically, both the low target on the street of $207.80, and the bull case of $273 reflect perceived upside.

What is driving the TSMC narrative?

Several key factors underpin this optimistic outlook. First and foremost is TSMC's commanding market share. The company controls over 60% of global chip foundry spending, effectively making it the linchpin of the semiconductor industry. This dominance is further solidified by TSMC's rapid advancements in cutting-edge chip technology. The company is reportedly ahead of competitors like Intel in the race to 2nm process technology, with production yields already reaching 60%. TSMC is expected to start accepting 2nm wafer orders from April 1st, 2025, with Apple rumored to be the first major customer.

The second, and arguably even more significant, driver is the explosive growth of the AI sector. The insatiable demand for AI processing power is creating a massive tailwind for TSMC. The company's AI-related business is projected to double year-over-year, contributing significantly to revenue growth. To meet this surging demand, TSMC is aggressively expanding its manufacturing capabilities and investing heavily in research and development, both domestically and internationally.

Financially, TSMC continues to deliver solid results. The company beat both EPS and revenue expectations in Q4 2024. Anticipation is building for the upcoming Q1 2025 earnings report, expected between April 17th and 21st, with consensus forecasts pointing to revenue between $25.2 and $25.4 billion and an EPS of $2.02-$2.07. The longer term EPS is set to be around $9.15 for the year.

However, investors must remain cognizant of the inherent risks. Geopolitical tensions, particularly concerning Taiwan's relationship with China, remain a persistent concern.

Shifting tides in global trade have created a significant amount of uncertainty, yet if tech is to recapture it's position as a driving force of markets, TSMC is likely to play a pivotal role. April 2nd tariffs, and the upcoming earnings season may provide a clearer picture on the economic outlook as we move forward, and these would be worth paying close attention to.