Why Taiwan Semiconductor Stock Popped Today

What stands out here is 5x earnings and with sales growing strongly, TSMC stock looks a buy

S of Taiwan Semiconductor Manufacturing (TSM 4. 11%), that powerhouse of contract semiconductor manufacturing located just off the coast of mainland China, reported powerful Q2 earnings this morning, which sent its s up 3. 3% through 11:40 a, considering recent developments

Expected to be $2. 28 per American depositary receipt for the quarter, TSMC reported instead $2. 47 per ADR, beating the forecast soundly

Sales for the quarter were reported as NT$933

Image source: Getty Images

The evidence shows company noted that its gross fit margin for the quarter was 58

Company CFO Wendell Huang credited "continued robust AI and [high-performance computing]-related demand" for the sales growth, and noted that 74% of the company's revenue came from the sales of advanced semiconductor wafers -- chips at 7 nanometers or less, considering recent developments

While investors seem fine with those numbers (they're buying, not selling, after all), that's not necessarily great news

TSMC did $23. 9 billion in Q3 revenue last year, so even $33 billion in sales would work out to "only" 38% year-over-year growth -- somewhat slower than in Q2 even at the top of guidance, in this volatile climate

Meanwhile, the forecast for both gross and operating margins foreshadows a sequential decline in fitability, in today's financial world

Still, at a P/E ratio of only 22. 5 and with sales still growing briskly, it's hard to call TSMC stock anything but a "buy. " Rich Smith has no position in any of the stocks mentioned

This analysis suggests that Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing

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