TSMC Shares Cheap at TWD 850 FVE Despite Slightly Less Bullish Long-Term Computing Growth

We have cut our fair value estimate for Taiwan Semiconductor Manufacturing Co. to TWD 850 per share/USD 133 per ADR as we bake in more conservative assumptions on high-performance computing demand in 2023 and 2024. We anticipate 2023 demand to be affected by sluggish PC demand and rebalancing of enterprise computing operations in light of fresh U.S. restrictions on doing business with Chinese customers. Nonetheless, we believe these do not change the long-term addressable market for HPC, and we still view TSMC’s shares as grossly undervalued. Having seen TSMC’s sequential decline in inventory days and management reducing capital expenditure by 10%, we foresee lower inventory dollars and a cautious 2023 capital expenditure budget (say flat year on year) as signs of the stock bottoming.