What Is Going On With Taiwan Semiconductor Stock On Tuesday?

Analog Devices ADI shares have soared 29% over the past year, outperforming the Zacks Semiconductor - Analog and Mixed industry’s return of 24.7%. This outperformance reflects the benefits of its portfolio strength and strategic partnerships, which are driving its momentum across various end-markets like industrial, automotive, consumer and communications.

Analog Devices’ efforts to integrate artificial intelligence technology into products to deliver enhanced customer experience are a plus. Investments in technology and business innovation and increasing power design wins are other major positives, which are impacting the stock positively.

Analog Devices, Inc. Price and Consensus

Analog Devices, Inc. price-consensus-chart | Analog Devices, Inc. Quote

Strategic Collaborations to Boost ADI’s Prospects

ADI’s strategic partnership with India’s Tata Group to boost the latter’s electronic manufacturing ecosystem marks a significant achievement. Tata Electronics, Tata Motors and Tejas Networks signed a Memorandum of Understanding with ADI to use its products in Tata applications mostly in electric vehicles and network infrastructure.

Analog Devices partnered with Flagship Pioneering to facilitate a fully digitized biological world. This collaboration combines ADI's engineering expertise in analog and digital semiconductors with Flagship Pioneering's proficiency in applied biology to promote the discovery of biological insights, new and enhanced measurements, diagnostics and novel interventions.

ADI’s latest collaboration with Honeywell HON to digitize commercial spaces without replacing existing wiring, reducing costs and downtime is a notable development.

Analog Devices has also teamed up with Taiwan Semiconductor TSM to secure long-term wafer capacity via Japan Advanced Semiconductor Manufacturing. This partnership, while ensuring a stable chip supply and facilitating rapid scaling and increased output to meet customer needs can be beneficial for ADI.

Analog Devices and BMW Group’s announcement of early adoption of E²B, ADI's 10BASE-T1S Ethernet to the Edge bus technology within the automotive industry, is a noteworthy development. BMW will leverage ADI’s E²B for ambient lighting system design in its vehicles.

Analog Devices Suffers Persistent Headwinds

Despite having a diverse portfolio and strategic alliances, macroeconomic challenges still pose a risk. Geopolitical tensions and recessionary fears are major negatives.

Rising competition from industry players like Texas Instruments TXN, which is also making concerted efforts to integrate generative AI capabilities into its products, remains a major concern. Texas Instruments’ growing investments in new growth avenues, strong portfolio and advanced technology infusion are driving its prospects.

So far this year, Texas Instruments launched several products, including the DLPC8445 display controller — a new, compact solution for 4K UHD projectors. It enables ultra-small, high-performance projectors for gaming and AR glasses, delivering sub-millisecond latency and frame rates up to 240Hz.

ADI Offers Dim Q4 Guidance

For fourth-quarter 2024, ADI expects revenues to be $2.40 billion (+/- $100 million), suggesting an increase of 4% sequentially at the midpoint. The Zacks Consensus Estimate for the same is pegged at $2.40 billion, indicating a decline of 11.6% year over year.

ADI anticipates a non-GAAP operating margin of 41% (+/- 100 bps).

The company expects the Industrial and Consumer end markets to increase, Communications to be flat and Automotive to decrease at the midpoint on a sequential basis.

The company expects non-GAAP earnings to be $1.63 (+/- $0.10) per share. The consensus mark for the same is pegged at $1.63 per share, unchanged over the past 60 days, suggesting a year-over-year fall of 18.9%.

ADI’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with an average surprise of 4.4%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Zacks Rank and Valuation

ADI shares currently have a stretched valuation, as suggested by a Value Score of D.

Analog Devices stock is trading with a forward 12-month Price/Sales of 10.61X compared with the industry’s 7.64X.

ADI currently carries a Zacks Rank #4 (Sell), implying investors should sell the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

The “Trump-related everything rally” reignited across markets on Monday, with heightened focus on last week's top performers like small caps, financials, Tesla Inc. , and cryptocurrencies, all surging as the new trading week began.

The Russell 2000 Index outperformed major large-cap indices, nearing a retest of its all-time high from November 2021.

Financials shone brightest again, with both large and regional banks posting strong gains. The SPDR S&P Regional Banking ETF surged 3.9%, reaching levels last seen in August 2022.

Bitcoin also dominated headlines, surpassing the $85,000 milestone and fueling widespread gains across other crypto assets.

Major crypto-related stocks, including Coinbase Global Inc. , rallied nearly 22%, hitting highs last seen in late November 2021. MARA Holdings soared 25%, with Riot Platforms Inc. and CleanSpark Inc. (NASDAQ:CSLK) both up by 21%.

Within tech, Tesla continued its rally, while the rest of the sector lagged, weighed down by sharp declines in semiconductors following new AI-related export restrictions to China, impacting Taiwan Semiconductor Manufacturing Company .

Elsewhere, the U.S. dollar extended its gains, while Treasury yields held steady, with the 10-year yield hovering around 4.3%.

Prices tumbled in commodities, with the exception of natural gas, which rose roughly 10%. Gold dropped over 2%, and oil fell by 3%.

Monday’s Performance In Major US Indices, ETF

According to Benzinga Pro data:

• The SPDR S&P 500 ETF Trust held steady at $598.43.
• The SPDR Dow Jones Industrial Average rose 0.7% to $443.23.
• The tech-heavy Invesco QQQ Trust Series inched 0.3% lower to $512.45.
• The iShares Russell 2000 ETF rose 1.6% to $242.00.
• The Financials Select Sector SPDR Fund outperformed, rising 1.8%. The Technology Select Sector SPDR Fund lagged, down 0.8%.

Monday’s Stock Movers

Stocks reacting to earnings reports were Monday.com ltd down 15% and Aramark , up 1%.

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Chip stocks including Nvidia Corp , Broadcom Inc , Intel Corp , Arm Holdings plc , Advanced Micro Devices, Inc Credo Technology Group Holding , Lattice Semiconductor Corp , Microchip Technology Inc , Marvell Technology, Inc , MACOM Technology Solutions Holdings , Micron Technology, Inc , Qualcomm Inc , Qorvo, Inc , United Microelectronics Corp are trading lower Monday in sympathy with contract chipmaker Taiwan Semiconductor Manufacturing Co .

Taiwan Semiconductor stock took a hit after the U.S. Department of Commerce instructed the chipmaker to cease supplying China with sophisticated chips—of 7 nanometers or more advanced designs—that support AI and graphics processing capabilities.

The U.S. move sent jitters across the sector, anticipating further actions from President-elect Donald Trump’s administration, which had previously attacked the U.S. Chips Act and Taiwan, the hometown of Taiwan Semiconductor.

Also Read: Monday.com Stock Tanks Despite Q3 Beat, Raised Outlook

In response to mounting U.S. pressures, Taiwan Semiconductor Manufacturing Co faces new constraints from Washington, prohibiting advanced AI chip sales to mainland China.

The U.S. Department of Commerce recently instructed Taiwan Semiconductor to cease supplying China with sophisticated chips—of 7 nanometers or more advanced designs—that support AI and graphics processing capabilities.

This directive, which took effect on Monday, reflects ongoing U.S. efforts to limit China's access to vital technological resources, the Global Times reports.

Also Read: ASML's IT Outage Affected Chipmaking Operations Worldwide

Taiwan Semiconductor stock is trading lower Monday after the report.

Visible Alpha by S&P Global Market Intelligence data reveals that Taiwan Semiconductor's third-quarter revenue saw 11% contribution from mainland China, while North America contributed 71%.

Given China's substantial revenue to Taiwan Semiconductor, this mandate puts the chipmaker in a challenging position as it navigates between regulatory compliance and retaining business.

Analysts suggest that while Taiwan Semiconductor will likely adhere to the order, it may explore ways to negotiate specific terms, hoping to limit the impact on customers outside the AI sector.

The Economic Daily News quoted Taiwan Semiconductor insiders indicating the company is actively strategizing how to respond to these new regulations.

Ma Jihua, a telecom industry expert, told the Global Times that although Taiwan Semiconductor cannot wholly resist U.S. regulations, it will likely seek flexibility in areas less impacted by the restrictions.

He noted that, like other major semiconductor companies, Taiwan Semiconductor's dependence on the Chinese market makes it challenging to disengage entirely.

Taiwan Semiconductor issued a statement confirming its compliance with international laws and export controls, emphasizing its position as a "law-abiding" entity.

ASML Holding NV , another major player in the semiconductor industry, faces similar challenges. Peter Wennink, its former CEO, has previously told the Global Times that ASML would continue selling to China despite restrictions, given that the market contributes about 30% of the company's orders.

In the past seven months, Chinese semiconductor exports reached approximately $89 billion, up nearly 26% from the previous year.

Additionally, China's domestic chip production has surged, with self-sufficiency rising from about 33% in 2013 to almost 80% by mid-2024.

Analysts told the Global Times that this domestic growth reflects China's efforts to reduce reliance on foreign suppliers as the geopolitical landscape remains uncertain.

Recently, Taiwan Semiconductor reaffirmed its commitment to a $65 billion U.S. investment despite Donald Trump's recent election and critical remarks.

The company stated it will proceed with its advanced chip production facilities in Arizona.

Trump had previously criticized Taiwan's semiconductor role and the Chips Act, favoring tariffs over subsidies.

Taiwan Semiconductor stock surged over 92% year-to-date.

Price Actions: TSM stock is down 3.88% to $193.40 at the last check on Monday.

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• Taiwan Semi and GlobalFoundries Finalize Major US Funding Deals, Eye Growth in Chip Manufacturing

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ASML Holding NV faced a global IT outage on Friday that disrupted its operations across multiple facilities.

Bloomberg cites an ASML spokesperson as saying the issue began in the morning and was resolved by late afternoon.

Some employees had to work from home, and the outage also affected cleanrooms, offices, customer support, and supplier communications, Bloomberg cites Dutch newspaper Eindhovens Dagblad.

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The manufacturer of the advanced chipmaking equipment has launched an investigation into the cause of the disruption.

ASML is already battling the consequences of U.S.-China geopolitical tensions, which prompted it to restrict its technology to the Asian country as a U.S. ally.

ASML's CEO Christophe Fouquet sees increasing U.S. pressure to tighten chip technology sales to China, citing geopolitical tensions. China remains ASML's largest market, but most sales focus on mature chips rather than advanced AI semiconductors targeted by U.S. export controls.

The company holds a monopoly on producing machines that enable firms like Taiwan Semiconductor Manufacturing Co to create the most advanced chips used in devices from Apple Inc's smartphones to Nvidia Corp's AI processors.

Recent reports indicated Taiwan Semiconductor will procure advanced ASML lithography machines by year-end, each worth $350 million.

In October, ASML unintentionally released its financial results a day early due to a "technical error," which exacerbated the market reaction to its weaker performance, causing shares of ASML and other chipmakers to tumble.

ASML reported net sales of 7.5 billion euros for the third quarter, topping analysts' expectations of 7.12 billion euros.

Bookings for the quarter reached 2.6 billion euros, with 1.4 billion euros attributed to EUV systems.

For the fourth quarter, ASML projected net sales of 8.8 billion euros-9.2 billion euros, reaffirming its full-year guidance of approximately 28 billion euros in total sales.

ASML expects 2025 net sales to be 30 billion euros—35 billion euros, down from its previous outlook of 30 billion euros—40 billion euros.

ASML stock lost over 6% year-to-date.

Price Actions: ASML stock closed lower by 1.14% at $669.47 on Friday.

Also Read:

• Taiwan Semiconductor US Expansion Plans Unfazed by Trump Win: Report

Photo via ASML

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