TSMC reportedly signs multiple auto chip deals: time to buy TSM shares?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Jul 23, 2021
  • TSMC shares are down 6.50% since reporting Q2 results last week.
  • The semiconductor manufacturer has reportedly signed multiple auto chip deals for capacity expansion.
  • As auto chips supply constraints continue to ease, is it time to buy TSM stock?

Taiwan Semiconductor Manufacturing Company Limited (TAI:2330) shares are down 6.50% after a disappointing Q2 report. The company announced its fiscal Q2 results last week that missed analyst expectations. 

However, the stock could recover soon after reports emerged on Friday suggesting it had signed multiple auto chip deals for its expanding capacity. Taiwan Semiconductor’s performance suffered from auto chip supply constraints earlier this year caused by the pandemic. Therefore, as the covid-19 situation eases, things could get better. It may explain why the company has reportedly inked deals to boost capacity.

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The report said the company was actively working with the auto supply chain to help alleviate the global chip shortage. Analysts are also optimistic the situation will ease during Q3, making it an excellent opportunity to hunt for auto chip manufacturer stocks.

Why buy TSMC shares in Q3 2021?

Taiwan Semiconductor shares trade at a trailing P/E ratio of 30.43 following last week’s pullback. The company’s forward P/E of 24.92 is exciting to value investors, making it an ideal target in Q3. 

Furthermore, analysts expect TSMC earnings to grow by 50% this year before increasing 17.63% next year. The forecast 5-year earnings growth rate of about 16% makes TSM shares compelling to growth investors.

Therefore, TSM’s recent pullback presents an attractive opportunity to buy before the auto chip supply chain returns to capacity. 

Source – TradingView

Technical overview: Taiwan Semiconductor stock price predictions for August 2021

Despite the post-earnings decline, the TSM stock price continues to trade within an ascending channel formation in the intraday chart. However, TSMC shares are yet to hit oversold conditions, leaving room for more declines.

The Taiwan Semiconductor stock is now trading just below the 100-day moving average, thereby facing resistance. But the trendline support also appears to offer support in the short term. Thus, from a technical perspective, it could be a tough battle between the bulls and the bears in the short term.

Traders may lean towards fundamental data to gauge TSM stock’s next move. Therefore, investors can target rebound profits at approximately $120.53 or higher at $124.83. The support levels are $111.70 and $107.89.

Bottom line: the case for buying TSM stock price rebound

Although TSM shares are yet to hit oversold conditions following the post-earnings pullback, Friday’s reports about signing multiple auto chip deals could significantly boost the stock price.

Therefore, although the bulls and the bears technically appear to be at a stalemate, recent reports could tip the scales in favor of investors looking to buy TSM shares.

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