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“Our conviction in the multi-year AI megatrend remains high and we believe the demand for semiconductors will continue to be very fundamental.” – C.C. Wei, President and CEO, Taiwan Semiconductor
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Before getting to this morning’s note, last night we updated our Bespoke Baskets, where we made two changes to the Growth basket and no changes to the Dividend Income basket. You can view the full update here.
Also, be sure to watch our discussion on markets with Brian Sullivan in a CNBC appearance yesterday.
Futures are indicated higher again this morning as the S&P 500 looks to add to its record highs from yesterday, in what has been one of the most rapid turnarounds in market history. Treasury yields are also lower, while crude oil is just fractionally higher. Both gold and Bitcoin have also shown very modest moves in either direction.
In Asia overnight, most major benchmarks were higher, with the Nikkei up over 2% and China up roughly 1%. In Europe, we’re also seeing gains with the STOXX 600 up 0.4%.
The pace of earnings continues to pick up, but this morning’s focus has been on economic data, and the news was good as both jobless claims and the Philly Fed Manufacturing report exceeded expectations. Lastly, in Fedpseak, NY Fed President John Williams is speaking right now, and he commented that “the No. 1 topic related to the economy is the Middle East conflict, which has introduced substantial risks and heightened uncertainty”.
Since it’s not a US company, Taiwan Semiconductor (TSM) doesn’t get a lot of attention in US stock market coverage, which is a mistake. With a market cap of just under $2 trillion, it’s one of the ten largest publicly traded companies in the world. TSM is the linchpin of the global semiconductor supply chain and the global digital economy for that matter. As much as the Iran war has disrupted energy supplies and threatened to derail the global economy, in a scenario where semiconductor supplies from TSM were cut off for an extended period, it would be an economic calamity.
Thankfully, that’s not the case. Overnight, TSM reported better-than-expected EPS and sales and raised guidance. As highlighted in the quote above, the company sees no signs of a slowdown in demand. Revenues rose 40.6% y/y on incredible gross margins of 66.2%.
TSM’s results for Q1 were nothing new and continued a trend of strong results since the launch of ChatGPT in late 2022. In the 14 quarters since that launch, the company has reported better-than-expected EPS results 13 times, exceeded sales results nine times, and raised guidance nine times. As shown in the table below, while results relative to expectations were shaky early on in the bull market, more recent results have been consistently strong, with six triple plays in its last seven reports.
Despite the strong results overnight, shares of TSM are trading modestly lower in the pre-market and failed to make a new high in yesterday’s trading, even as the broader market and the Philadelphia Semiconductor Index (SOX) specifically hit new highs yesterday. That’s not to say that the stock hasn’t been a strong performer, though, more than doubling in the last twelve months.
TSM is the second-largest stock in the SOX on a market cap basis, trailing Nvidia (NVDA) by a wide margin. Like TSM, though, NVDA also didn’t join the SOX or the S&P 500 in hitting a new high yesterday. The fact that the SOX has managed to make new highs without the participation of its two largest members illustrates how broad the underlying strength in the sector has been.
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