TSMC in 2023: Material slowdown already in expectations; likely monster FCF beat.

Expectations for TSMC in 2023 don’t seem to make sense: The sell-side doesn’t seem to reflect any sort of material pullback in demand, but has revenue growth slowing, still, while capex remains elevated. There are a lot of contradictions. In today’s research, we carefully review 2023 for the company: segments we expect to pull back materially, segments we expect to better fly through the downturn, and market share gains resulting from multiple drivers (AMD in servers, Intel in PCs, and against Samsung with Qualcomm.) This brings us to an interesting perspective: We expect TSMC will still grow (although low single digits) through the downturn, and most importantly reduce capex significantly. This would result in FCF growing 150% YoY, 70% above what consensus expects. We would expect the stock to react very well to that, as it has in the past.

TSMC has spent a lot in the last two years to meet structurally increased demand. In a market pulling back, it will be time to show continued strong share gains and harvest cash.