On its latest financials, Taiwan Semiconductor stock - TSM Stock - dropped ~13.25%. TSM stock has been gamely trying to regain ground. TSMC has guided for strong demand across its products. AI chip demand is expected to double over the near term and this will continue to fuel further revenue gains for TSMC, which should drive TSM stock. But, after the most recent financial release, TSM stock has fallen. Why? Better to ask, what is a rational valuation for TSM stock given current economic landscape?
Inflation is driving higher despite the Federal Reserve’s push to reign in year-over year growth. The Fed’s target rate of 2.00% looks like a miss given the most recent economic data - interest rates are not likely to be cut as the stock market has priced in. The Fed will, at the very least, have to pause its cutting near-term rate cutting hopes and hold out a bit longer as the economy’s pace moderates. The likeliest result of this is stocks adjusting in price as interest rate levels adjust to ‘not cutting’ levels.
TSM stock is very likely to move lower based upon this - along with the broader stock market. Given that, breaking down valuations for TSM stock and understanding what it will produce in terms of revenue gains and profits will help a value investor better understand the future of TSM stock.
