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TSMC’s $100 Billion Wipeout Fails to Faze Bullish Analysts

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(Bloomberg) -- The share price slump that’s erased about $100 billion from the market value of Taiwan Semiconductor Manufacturing Co. this year means little to the legion of analysts who see the stock as a screaming buy.

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TSMC shares are expected to climb about 50% to a record high 12 months from now, according to sell-side analyst estimates compiled by Bloomberg, as macro headwinds buffeting the sector ease and investors return their focus to the company’s fundamentals.

Fund managers are also starting to view an end in sight to the rout, and Chairman Mark Liu’s Wednesday forecast for 30% revenue growth this year bolsters this case. The company’s May sales grew 65% from last year, TSMC reported Friday after the market close. Shares fell 2% during the session in Taipei.

Read: TSMC Expects 30% Sales Rise Despite Global Economic Ructions

While the scale of TSMC’s drop is notable, having shed more than a tenth of its share value, it is still about half the fall seen in 2022 in the global semiconductor benchmark index. The company occupies a powerful position in the global technology supply chain as the most advanced maker of chips for giants from Apple Inc. to Nvidia Corp.

“Buyers may return as soon as non-fundamental factors disappear,” said Alex Huang, manager of Capital Hi-Tech Fund in Taipei. He sees a prospect of inflationary concerns and the war in Ukraine, which have both weighed on semiconductor makers, changing for the better in the second half of the year.

Being the largest and the most liquid stock on Taiwan’s equity market also made TSMC an easy selling target for some foreign investors, according to Huang. The $475 billion company accounts for about 27 percent of Taiwan’s entire equity market value.

“While many worry about a cyclical correction, we forecast share gain and robust pricing which will ensure TSMC grows uninterruptedly this year and also in 2023 and 2024,” Sanford C Bernstein analysts including Mark Li wrote in note earlier this month.

Of the 37 analyst recommendations compiled by Bloomberg, 34 are buys, three are holds and none are sells. The average 12-month price target is NT$816.75, versus Friday’s close of NT$530.

Risk factors

To be sure, investors were blindsided by the pandemic, missed many of warning signals before Russia invaded Ukraine and are divided on the course of inflation -- all of which will continue to shape the macro picture for chip makers.

“We think TSMC stock is already factoring in a downturn,” JPMorgan Chase & Co. analysts including Gokul Hariharan said in a note Wednesday. “However, the extent of potential downside to 2023 estimates is still unclear,” they said, while maintaining a buy rating.

Others though, are less hesitant in their calls.

Morgan Stanley analysts including Charlie Chan said the current nervousness in the market presents a good opportunity to buy TSMC, whose “future looks secure.”

“We think now is a great time to accumulate,” he wrote in a report late last month, noting the company’s technology leadership.

(Updates with Friday share price and May sales data in third and eighth paragraph)

(Updated with latest sales data for May and Friday’s share move in third paragraph and closing price in eighth paragraph.)

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