Shares of Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker, have seen a significant decrease in value since mid-June, losing more than any other stock in Asia. The 10% fall in TSMC shares has wiped out $72 billion from its market cap, fueled by concerns about the macro environment and a softening demand for global consumer electronics.
Traders have been bidding up bearish contracts, leading to a continued rise in the volatility skew in recent months, indicating a potential further drop in TSMC's stock. This comes after TSMC shares jumped 60% between October and June, driven by the global frenzy over everything related to artificial intelligence (AI). However, traders have grown more cautious about the extent to which this will contribute to TSMC's bottom line, especially without an uptick in the smartphone and personal computer business. High-end AI chip orders have also slowed at a faster pace than anticipated.
Analysts at JPMorgan Chase (NYSE:JPM) predict a slower recovery for TSMC going into 2024 due to the softness in most end markets like PCs, smartphones, and non-AI services. They recently wrote in a note, "With a murky macro outlook, we expect (first-half 2024) orders to remain sluggish."
Analysts are also expressing concerns about capital spending. In June, TSMC warned that levels may fall to the bottom end of its $32 billion to $36 billion guidance for the year. While cuts in capital expenditure are often seen as a positive cost management tool, analysts believe that recent reductions signify longer-term pessimism about chip demand and worries about an extended recovery.
Goldman Sachs Group (NYSE:GS) recently reduced its estimate for TSMC's capital spending for 2024 by over 20% to $25 billion, reflecting these concerns. The ongoing sell-off of TSMC shares and the bearish outlook for the chip sector suggest that the rout may not yet be over.
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