Shares of Taiwan Semi (TSM, Financial) have declined nearly 10% over the past month, following a substantial rally from August 5 lows. Today’s decline is driven by a minor cooldown in August revenue growth after a robust July. The world's largest chip manufacturer reported August revenue growth of 33.0% year-over-year, reflecting healthy demand for its chips and continuous AI-related orders from giants like NVIDIA (NVDA, Financial) and Advanced Micro (AMD, Financial). However, on a month-over-month basis, August revenues dipped by 2.4%.
- Why did this minor dip trigger selling pressure?
- Market concerns over an economic slowdown are growing. For instance, despite NVDA reporting an impressive beat-and-raise in July, its shares dropped over 6%. Similarly, Broadcom (AVGO, Financial) sold off despite lifting its FY24 AI revenue outlook last week due to a slightly lower-than-expected Q4 consolidated revenue forecast.
- Given this backdrop, even minor issues, such as a 2.4% month-over-month revenue drop for TSM, can trigger a concerning market response.
- TSM faced a less challenging year-over-year comparison in August compared to July. Last year, revenue fell by 13.5% year-over-year in August versus a 4.9% drop in July. This year, TSM recorded a 33.0% increase in August revenues compared to a 44.7% improvement in July.
- Despite growth concerns, TSM still posted robust year-over-year growth for August, maintaining its recovery momentum this year following a lackluster 2023. The company's Q2 results showed that AI demand remains strong. Management raised its FY24 revenue outlook significantly while keeping its growth prediction for the overall semiconductor market unchanged, reflecting confidence in sustained AI demand.
The key takeaway from today’s reaction to TSM’s August growth rate is that some tech stocks, particularly those that have surged over the past year, might be on shaky ground. Any minor issues can lead to quick downside action. However, TSM's monthly revenue growth throughout FY24 has been impressive. While the company benefits from lapping a difficult year with year-over-year growth contractions in all but three months, its increased revenue outlook and positive remarks on AI demand should help alleviate broader growth fears.
