Taiwan Semiconductor Manufacturing (TSM +0.42%) is making big gains again this week. The chip fabrication leader's share price had climbed 14.5% from last week's market close as of 11:15 a.m. ET this Friday, according to data from S&P Global Market Intelligence.
NYSE: TSM
Key Data Points
While there wasn't any business-specific news pushing TSMC stock higher this week, the semiconductor manufacturing specialist's valuation is getting a boost from an overall industry backdrop that continues to look increasingly favorable. In particular, TSMC's share price is climbing in conjunction with the blockbuster earnings results and guidance issued by Arm Holdings this week.
Semiconductor stocks continue to heat up
Arm is a leading designer of architecture for central processing units (CPUs) used in mobile devices, computers, and other hardware. Meanwhile, TSMC is the world's leading manufacturer of third-party semiconductor designs. Strong results and growth forecasts from Arm generally bode well for TSMC -- and they're pushing the Taiwan-based company's share price higher this week.
On Feb. 7, Arm published results for the third quarter of its current fiscal year, which concluded at the end of December. The company posted non-GAAP (adjusted) earnings per share of $0.29 on sales of $824 million, beating the average analyst estimate's call for per-share earnings of $0.25 on sales of roughly $763 million. The company's guidance for the current quarter was even more encouraging.
For fiscal Q4, Arm is guiding for adjusted earnings between $0.28 per share and $0.32 per share on revenue between $850 million and $900 million. This guidance came in far above the average Wall Street analyst's call for per-share earnings of $0.21 on sales of $778.5 million.
Arm stock is up more than 50% following the results and guidance, and its explosive valuation jump has created spillover effects that have extended to TSMC's share price.
Is TSMC stock still a buy?
On the heels of this week's gains, TSMC stock is now up roughly 27.5% across 2024's trading and 40.6% over the last year. On the other hand, the stock still doesn't look expensive on a price-to-earnings basis.
TSM PE Ratio (Forward) data by YCharts
Trading at roughly 21 times this year's expected earnings and 17 times next year's expected profits, TSMC stock could still have room to run above current pricing levels. The company is still in the early stages of benefiting from tailwinds related to artificial intelligence, and there seems to be a good chance that the broader semiconductor industry will emerge from its cyclical downturn within the next couple of years.
On the other hand, investors should keep geopolitical risk factors in mind before going all-in on the stock. The company's central position in tensions between the U.S. and China and importance to overall global supply chains mean that factors beyond sales and earnings performance could have big impacts on its valuation.
