TSM earnings preview: A $100B plan to ease the global chip shortage

Last week, TSM announced that it would invest a staggering $100B over the next three years to increase production capacity

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For those who haven’t been following along closely, there’s a massive shortage of semiconductor chips across the globe stemming from last year’s COVID-19 related supply chain disruptions. The ongoing shortage is impacting major industries from auto manufacturing to cell phones to medical equipment to consumer electronic devices, and Taiwan Semiconductor Manufacturing (TSM) is by far the dominant global producer at the center of the crisis.

See my colleague Rebecca Cattlin’s article on the key semiconductor chip companies to watch in 2021!

Despite running its plants at over 100% utilization, the company has still been unable to keep up with demand. Last week, TSM announced that it would invest a staggering $100B over the next three years to increase production capacity (including a $3.5B plant in the US) to address the current global backlog and accommodate a coming surge in demand around technologies like 5G service.

Earlier today, the firm reported its monthly sales figures showing a strong 16.7% rise in Q1 revenues to $12.7B as the global economy starts to emerge from COVID-induced lockdowns, but traders are most focused on TSM’s full earnings report next week.

When are TSM earnings?

Thursday, April 15 before the opening bell

TSM earnings expectations

$0.95 in EPS on $12.86B in revenues in Q1

TSM technical analysis

After more than tripling off its pandemic lows in the lower-$40s in less than a year, TSM has struggled since its peak above $140 in mid-February. The stock spent six weeks in a near-term bearish channel, briefly dipping below its 100-day EMA near $112, before recovering back toward this week’s consolidation range in the low-$120s:

 

Source: StoneX, TradingView

Looking ahead, TSM has a lot riding on next week’s earnings report. A strong release, coupled with optimistic guidance for the rest of the year, could quickly take the momentum-driven stock back toward its highs in the $140 area. Meanwhile, a disappointing earnings update may prompt longer-term bulls to take profits and push the shares down to retest the year-to-date low near $108.

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