After ASML's performance collapsed, will Taiwan Semiconductor become the "lifesaving straw" in the AI chip market?

According to the Zhitong Finance and Economics APP, the stock price of Taiwan Semiconductor (TSM.US) has recently rebounded to a record high, but this upward trend faces a key test. After ASML (ASML.US) issued a profit warning causing a global decline in chip stocks, market attention has shifted to the financial report that Taiwan Semiconductor is scheduled to release on Thursday.

Due to the market's easing concerns about Nvidia's (NVDA.US) latest artificial intelligence (AI) products, as well as optimistic views on Apple's (AAPL.US) iPhone, Taiwan Semiconductor's stock has once again gained favor with investors. The company's US-listed stock has risen by 30% from its low point in August, reaching a new high.

Market observers state that after Taiwan Semiconductor's preliminary sales performance for the latest quarter exceeded expectations driven by artificial intelligence, strong performance guidance may once again boost the company's stock price. Comments from Taiwan Semiconductor on demand will be closely watched, especially after ASML lowered performance expectations in areas outside of artificial intelligence, leading to a global decline in chip stocks.

Kevin Net, Asia stock manager at Financiere de L Echiquier, said that strong guidance and potential comments on demand for 2025 "could push up the stock price." Taiwan Semiconductor's capital expenditure may "ultimately reach the high end of the guidance range, around $32 billion," indicating a strong outlook.

Just a few months ago, investors were selling off artificial intelligence stocks amid concerns that the technology could not meet overly high profit expectations. Since the beginning of this year, market earnings per share expectations for Taiwan Semiconductor have risen by 37%, reaching a historical high.

The third-quarter financial report of Taiwan Semiconductor is expected to show improved profitability, with analysts predicting a gross margin of 54.8%, the highest level in six quarters.

Following Taiwan Semiconductor's upward revision of sales growth targets in July, the company's full-year forecast will be of particular interest. Gary Tan, portfolio manager at Allspring Global Investments, stated that the capacity expansion of Nvidia's Blackwell chips and the progress in Taiwan Semiconductor's advanced packaging capacity expansion are both key points to watch.

Despite concerns about the weak outlook of lithography giant ASML once again raising worries about the entire industry, Taiwan Semiconductor is seen as more resilient than ASML. ASML is a major equipment supplier for Taiwan Semiconductor. Analysts believe that Taiwan Semiconductor's long-term prospects should not be affected, as they depend on the demand for high-end chips used for training and hosting artificial intelligence models.

Analysts at Nomura Holdings, including Aaron Zheng, stated last week: "Artificial intelligence continues to be a driving factor for Taiwan Semiconductor's fundamentals and valuation." Any negative impact from non-artificial intelligence businesses is limited, "as the supply chain has been very cautious, so we expect to see more significant cyclical rebounds by 2025." In addition to fundamental factors, some market observers have also issued warnings about geopolitical concerns before the US election. To hedge against geopolitical risks, Taiwan Semiconductor is investing billions of dollars to establish new production bases in the United States, Japan, and Germany.

The market generally expects Taiwan Semiconductor's US stocks to rise by 16% in the next 12 months. The valuation is not high, with an expected price-to-earnings ratio of 23 times for its American depositary shares, compared to a peak of 34 times in 2021.

As of the close of the US stock market on Wednesday, Taiwan Semiconductor rose slightly by 0.19%, after falling 2.6% the previous day due to news about ASML