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Taiwan Semiconductor’s A.I. Surge: Ready for More Gains or Hitting a Speed Bump?

Xchange NewsletterOctober 28, 2024 | 4 min read
A 3D map of Taiwan with the flag of Taiwan inside, on an AI chip background

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Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. Leveraged and inverse ETFs pursue daily leveraged investment objectives, which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock’s performance increases, and the Bear Fund will lose money even if the underlying stock’s performance decreases, over a period longer than a single day. Investing in the Funds is not equivalent to investing directly in TSM.

Shares of Taiwan Semiconductor Manufacturing Company Limited (Ticker: TSM) are fresh off a blowout earnings report, where results exceeded expectations. Much of their business growth is being driven by demand for chips related to artificial intelligence (AI), but after gapping up higher after earnings, is there still room for additional upside?

Another AI Beneficiary

Taiwan Semiconductor is a major producer of artificial intelligence chips designed by companies including Nvidia and Advanced Micro Devices. TSM’s third quarter profits rose 54% compared to last year, and the company raised its guidance outlook. Management even forecasted that AI revenue could triple in the next year.

TSM is also integral to the automotive industry as more and more vehicles are using smart chips in their design. The company’s relationship with Apple cannot be understated either, and as long as its partnerships remain strong, its revenue growth potential benefits.

Various analysts are looking for the overall semiconductor industry valuation to grow over 12% in 2025. Since TSM is at the forefront of the industry, the company could be poised to drive much of this growth at the industry level.

Traders looking for more upside in Taiwan Semiconductor may find a trade with Direxion’s Daily TSM Bull 2X Shares (Ticker: TSMX), which seeks daily investment results, before fees and expenses, of 200% of the performance of the common shares of Taiwan Semiconductor Manufacturing Company Limited (Ticker: TSM).

Below is a daily chart of TSM as of October 18, 2024.

Daily chart of TSM as of October 18, 2024

Source: TradingView.com

Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.

The performance data quoted represents past performance. Past performance does not guarantee future results.

Could an Economic Slowdown Hurt Chips?

While it seems that the momentum in the artificial intelligence sector is strong, there are growing concerns about a potential economy slowdown. This may be one of the major reasons why central banks around the world have begun to ease monetary policy.

In the United States, the initial Q3 Gross Domestic Product (GDP)* number will be released on October 30. In the event it comes in below estimates, it could foreshadow a drop in consumer demand. This could affect many companies such as Apple and other automotive companies, which are major customers of TSM. This could potentially impact the revenue and earnings growth of TSM, and if they come in below forecasted estimates, could lead to a selloff.

In this situation, Direxion’s Daily TSM Bear 1X Shares (Ticker: TSMZ), which seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of the common shares of Taiwan Semiconductor Manufacturing Company Limited (Ticker: TSM), could see a nice rebound.

*Definitions and Index Descriptions

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