TSMC Earnings: Wiser Capital Spending Paves the Way for Higher Dividends

We raise our fair value estimate on Taiwan Semiconductor Manufacturing, or TSMC, to TWD 900 per share (USD 139 per ADR at current exchange rates) after management gave upbeat fourth-quarter guidance fueled by stronger-than-expected smartphone sales, and we cut capital expenditure forecasts. We now expect TSMC to stop increasing capital expenditure in 2024 to brace for a weak economy and focus on addressing bottlenecks for artificial intelligence applications that will bring the same revenue growth. By doing so, TSMC has more room to increase dividends. Better shareholder returns and an improving consumer electronics outlook should improve sentiment soon, and investors are presented with a solid entry point while the stock remains very undervalued.