The stock market is off to a terrific start in 2023, with the S&P 500 index gaining 8% so far. It would not be surprising to see the market head higher as the year progresses amid signs of a stabilizing U.S. economy and because of indications that the Federal Reserve is likely to slow the pace of interest rate hikes in response to cooling inflation.
This economic positivity is now being seen in the share prices of Meta Platforms (META -10.56%) and Taiwan Semiconductor Manufacturing (TSM 2.71%), popularly known as TSMC, as well. Meta stock is up a whopping 53% so far in 2023, while shares of foundry giant TSMC have jumped nearly 28% this year.
Even with the recent price jump, shares of both companies continue to trade at attractive levels. Let's look at the reasons why these tech stocks should be able to sustain this momentum and keep heading higher.
1. Meta Platforms
Meta Platforms' stock was in the doghouse for much of the past year, thanks to challenging conditions in the digital advertising space, but the company's latest quarterly results indicate that a turnaround is in the cards.
The Facebook parent's fourth-quarter 2022 results, which were released on Feb. 1, led to a 20% spike in its stock price in a single day. The company's results exceeded expectations, with revenue of $32.2 billion, beating the Wall Street estimate of $31.5 billion. Its adjusted earnings of $3 per share also eclipsed the $2.22-per-share consensus estimate.
Moreover, Meta's focus on keeping tight control of its expenses this year is expected to drive bottom-line growth. The company forecasts $92 billion in total expenses in 2023 at the midpoint of its guidance range, down from its prior expectation of $97 billion. Meta also lowered its capital expenditures estimate to a range of $30 billion to $33 billion from the earlier estimate of $34 billion to $37 billion.
Meta finished 2022 with $116.6 billion in revenue. The company's expenses increased a whopping 23% over 2021 to $87.6 billion, sending its earnings down 38% to $8.59 per share. Analysts anticipate a 5% jump in Meta's revenue this year to $122.4 billion, while the moves to control costs could send earnings to $9.25 per share. What's more, Meta Platforms is expected to witness further improvements in its top and bottom lines next year.
META Revenue Estimates for Next Fiscal Year data by YCharts
These estimates aren't surprising, as Meta faces easier comparisons in 2023. Digital ad spending growth had slowed down to 8.6% in 2022 to $567 billion following a 30% jump in 2021, according to eMarketer. Digital ad spending growth is expected to accelerate in 2023 to 10.5%, followed by an 11% increase in 2024, paving the way for Meta to boost its top line.
And given that Meta CEO Mark Zuckerberg will focus on improving operational efficiency and reducing costs, the company's earnings are likely to head higher. That's why investors in the hunt for a cheap stock that could go on a bull run may want to buy Meta before it is too late.
The stock currently trades at 21.7 times earnings -- which is lower than the Nasdaq-100's multiple of 24.3 -- so investors are getting a good deal on Meta Platforms right now. They should consider capitalizing on that opportunity.
2. TSMC
TSMC stock is already on a bull run, as its shares have shot up 52% in the past three months, but the good part is that it is still trading at just 14.6 times trailing earnings right now. The valuation makes TSMC stock a bargain that investors should consider buying hand over fist, even though the near-term prospects of the semiconductor market may appear to be bleak.
Gartner is estimating a 3.6% decline in the semiconductor industry's revenue this year to $596 billion. While that's not ideal for a foundry such as TSMC that makes chips for the likes of Advanced Micro Devices, Nvidia, and Apple, among others, investors would do well to focus on the bigger picture. TSMC CEO C.C. Wei said on the company's January 2023 earnings conference call that the semiconductor market is set to recover in the second half of the year.
This probably explains why investors aren't worried about the short-term slowdown in TSMC's growth. The company's top and bottom lines are expected to drop in the current quarter as compared to the prior-year period. Consensus estimates suggest that TSMC's revenue would increase only 1% in 2023 to $76.6 billion, while earnings could drop to $5.56 per share from $6.60 per share in 2022.
However, TSMC could spring a positive surprise as the year progresses. That's because the company is forecasting solid demand for chips manufactured on its N3 3-nanometer (nm) process. TSMC has started the volume production of these chips and claims that their demand exceeds supply. The company also points out that the demand for its 3nm chips, which it claims is "the most advanced semiconductor technology," should continue driving growth in the coming years as well.
Global semiconductor industry revenue is also expected to increase 16.3% in 2024 to $654 billion. So, TSMC's growth could start picking up the pace in the second half of the current year, and it should be able to sustain the same in 2024, which explains why analysts are expecting solid growth from the company next year.
TSM Revenue Estimates for Next Fiscal Year data by YCharts
In all, TSMC's weakness shouldn't last for long, and the improving conditions in the semiconductor market should be a tailwind for this stock. All this makes TSMC stock a smart buy right now, given its cheap valuation and ability to deliver a healthy upside in 2023 and beyond.
