BY MARK SEBASTIAN
April 22, 2024
TRADE IDEA
Each week, my team will give an overview of a stock. I’ll discuss fundamentals, Licia will analyze the charts, and AG will break down the volatility.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Trader,
This week we are breaking down the chip manufacturer that has already reported…TSM. It is the manufacturer of so many major chip makers chips …but the stock is down since earnings…time to buy? Let’s break it down.
Taiwan Semiconductor (Ticker: TSM)
For a chip maker, the fundamentals on TSM are pretty darn good.
It has strong revenues and produces great positive cash flow. With an EPS of 4.98 the PE on a trailing twelve month basis is ‘only’ 26.5.
NVDA has a PE of 71, AMD has a PE of almost 300…just to put things in perspective.
What is the risk…geopolitical and the fact that they rely on others for business.
China is a problem for TSM…but an even bigger problem is names like NVDA and AMD. If the AI boom slows down…what happens?
NVDA and AMD will sell off…but TSM could take it on the chin.
The ASML earnings could be a harbinger of bad things for TSM.
Long term I think you are fine, but if the PE’s of NVDA and AMD get compressed Taiwan Semiconductor could see 100.
I wouldn’t short, but I would wait to go long.
-Mark
TSM Looking Lower
Taiwan Semiconductor Manufacturing Co (Ticker: TSM) has pretty much gone straight up from September 2023 to March 2024.
Since topping out at $158 on March 8th, TSM is down thirty bucks or 19%.
It gapped down on earnings this week and followed that up with another day lower creating a pretty ugly chart with high volume on both days:
The weekly chart is not looking any better:
The first level of support on the pitchfork comes in at $122.63 and from there $113.
If TSM does try and rally, resistance comes in at $133.20.
Overall, I am bearish TSM.
TSM IV holding up just when it is not supposed to
What folks pay for options matters. Especially after earnings when most movement tends to die down a bit. Implied volatility after earnings in TSM is still juicy. It should be in the low 20’s by now but it is not.
Like a lot of big tech companies and the semiconductor industry in particular right now the nosebleed valuations are coming down. It is just a question of how far down the stocks with go. Traders right now are still buying option premium in TSM and if they were not, the premiums would be much lower.
TSM is a good chunk of the market cap in Taiwan. It is also a constant reminder if Taiwan gets attacked by China and taken over, where is the global semiconductor market? In a mess. I think the idea of a 1 x 2 put spread selling 110 puts would make sense. That is a solid $40 from the highs and back to a normal valuation. I think it is more sideways to down for a while and the 1 x 2 put spread could work well.
-AG
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Mark Sebastian
Founder & CEO, Option Pit
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