Taiwan Semiconductor Manufacturing (TSM.US) reported its May revenues, achieving a 39.6% year-over-year increase, totaling $10.7 billion. The company continues to experience rising demand for its chips, further boosted by concerns over the impact of tariffs on international trade.
American Big Tech companies remain TSMC's primary clients. Apple, Nvidia, AMD, and Qualcomm account for approximately 40% of the company's revenue. For Nvidia, AMD, and Qualcomm, TSMC's offerings represent nearly 30% of their total cost of goods sold, making TSMC a crucial chip supplier for these firms.
Consequently, amid the ongoing uncertainty in US-China relations, TSMC benefited from increased demand from its key partners. This, combined with growing investments in artificial intelligence and the need for the latest semiconductors, contributed to the company's record revenue growth. Although sales growth in May declined by over 8 percentage points compared to April, it still remains at elevated levels. Market forecasts predict the company's revenues to grow by 50.3% year-over-year in Q2. From January to May, sales have already increased by 48.1%, implying that June's performance is expected to be even stronger. Notably, May alone generated over 50% of the revenue projected for the entire Q2 2024.
Company Performance Compared to Key Clients
Looking at TSMC's stock performance since the beginning of 2025, it's evident that sentiment towards the company remains heavily influenced by Nvidia. After recent rallies, TSMC has re-entered positive year-to-date growth territory. A clear divergence is visible between the stock performances of Apple versus Nvidia and TSMC. While these companies showed similar trends before April, they distinctly separated from May onwards when positive sentiment returned to the AI sector.
Valuation Metrics Still Below Averages
The forward P/E ratio for TSMC remains below its 2-year averages. The most significant drop in the ratio was triggered by the mid-2024 price correction, alongside revisions to the company's projected earnings. This was particularly evident in the second half of 2024, where the stock price rose by 17% while the forward P/E ratio remained below the 19.49 threshold. Currently, the company is trading at a forward P/E of 16.52x, leaving room to reach both the average value (17.42x) and the one standard deviation value (19.49x), at which the company traded at the end of last year.
Similar trends are observed in other forward-looking indicators. The forward EV/EBIT of 13.7x is approximately 7% lower than the 2-year average, and the EV/S of 14.7x is 1% lower than its 2-year average.
The forward P/E ratio remains at reduced levels compared to the 2-year averages. Moreover, the company is trading at significantly lower levels than indicated by the mid-2024 valuation. Source: Bloomberg Finance L.P.
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