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Taiwan Semiconductor ADR(TSM-N)
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Why TSMC Stock Is Falling Today

Motley Fool - Wed Oct 25, 2023

Taiwan Semiconductor Manufacturing(NYSE: TSM) stock is losing ground Wednesday. The semiconductor fabrication leader's share price was down 2.6% as of 11:45 a.m. ET, according to data from S&P Global Market Intelligence.

Texas Instruments published its third-quarter results after the market closed yesterday, and its performance and forward-looking statements are having ripple effects across the semiconductor industry. Not only did the company miss Wall Street's Q3 sales target, the company also issued guidance that came in far worse than analysts had anticipated.

Why is Texas Instruments' earnings report hurting TSMC stock?

With revenue of $4.53 billion in Q3, Texas Instruments missed the average Wall Street target by roughly $60 million. While that's not a great sign, it's the company's forward projections that are dragging down TSMC stock.

For the fourth quarter, Texas Instruments is guiding for sales to be between $3.93 billion and $4.27 billion. Meanwhile, the average analyst estimate had expected the company to post roughly $4.49 billion in revenue for the quarter. Even worse, the company's target for earnings per share, $1.35 to $1.57, came in far below the average Wall Street target, $1.76.

In addition to the underwhelming guidance numbers, Texas Instruments management also provided some worrisome commentary on demand trends. The company is seeing industrial weakness intensifying across multiple sectors.

TSMC is the world's largest contract manufacturer of semiconductors. Accordingly, its sales and earnings performance is closely tied to overall demand trends in the industry.

What comes next for TSMC stock?

The semiconductor industry tends to be highly cyclical. While recent demand for chips capable of powering advanced artificial intelligence (AI) has been soaring, other parts of the industry are currently in a downturn phase. Even though the company has seen strong sales growth for AI-related chips, the category still accounts for less than 10% of its overall revenue by most estimates.

With indications that demand for some chip categories is continuing to weaken, it's reasonable to anticipate that TSMC could face some significant performance headwinds. On the other hand, it's still the clear leader in a vital part of the semiconductor industry, and the long-term demand outlook for chips remains favorable.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing and Texas Instruments. The Motley Fool has a disclosure policy.

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