Why Taiwan Semiconductor Stock Was Climbing Today

Shares of Taiwan Semiconductor Manufacturing Corporation (NYSE: TSM) were moving higher Thursday after the world's largest contract chip manufacturer posted better-than-expected results in its fourth-quarter earnings report.

As of 12:20 p.m. ET, the stock was up by 5.2%.

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TSMC can't be stopped

TSMC has been a big winner amid the AI boom and a broader recovery in the chip sector, and that momentum continued in the fourth quarter.

Revenue in the period jumped 38.8% to $26.9 billion, topping analysts' consensus estimate of $26.3 billion. The company continued to benefit from the growing adoption of advanced chips as revenue from its 3-nanometer (nm) process technology rose to 26% from 15% in the year-ago quarter. Advanced technologies, which it defines as 7nm or less, accounted for 74% of revenue.

Margins also expanded, reflecting both the growth in sales of advanced chips and TSMC's own pricing power. Gross margin improved from 53% to 59%, and operating margin jumped from 41.6% to 49%. As a result, the company reported adjusted earnings per share of $2.24, up 57% year over year.

"Our business in the fourth quarter was supported by strong demand for our industry-leading 3nm and 5nm technologies," CFO Wendell Huang said. However, he cautioned, "Moving into first-quarter 2025, we expect our business to be impacted by smartphone seasonality, partially offset by continued growth in AI-related demand."

What's next for TSMC

Despite the comment above, TSMC still issued much better guidance than expected for the first quarter. It forecasts revenue of $25 billion to $25.8 billion, which would be a sequential decline, but was well ahead of analysts' consensus estimate of $23.9 billion. It also expects operating margin to remain strong, in the 46.5% to 48.5% range.

Given the momentum in the AI space, TSMC's dominant position in high-end chip manufacturing, and the company's reasonable valuation, the stock looks like a good bet to move higher.

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Jeremy Bowman has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.