While Nvidia may grab the headlines in the world of artificial intelligence, investors are keeping a close eye on Taiwan Semiconductor Manufacturing Company (TSMC) as a key indicator of the broader AI ecosystem’s health. TSMC, the world’s largest contract chip manufacturer, is set to unveil its third-quarter earnings report next week, and Wall Street is buzzing with anticipation.
Analysts are forecasting earnings per share of $1.80, with some even predicting a high of $1.90. This would be a significant improvement over the $1.29 EPS recorded in the same quarter last year. Revenue is expected to be around $22.65 billion, with optimistic estimates reaching $23.2 billion, compared to $17.07 billion in the same period last year.
Overall, sentiment towards TSM stock is bullish. The company has consistently exceeded bottom-line targets, averaging a 6.03% earnings surprise over the past four quarters. On a broader scale, TSMC is expanding its global footprint, recently breaking ground on a fabrication facility in Dresden, Germany.
However, the picture isn’t entirely rosy. The magnitude of TSMC’s earnings beats has gradually softened since Q3 2023. Furthermore, options data suggests a growing bearish sentiment among traders. This backdrop has created fertile ground for Direxion, a financial services giant, and its suite of Taiwan Semiconductor-focused exchange-traded funds (ETFs).
Direxion has launched two ETFs specifically targeting TSMC: the Direxion Daily TSM Bull 2X Shares (TSMX) and the Direxion Daily TSM Bear 1X Shares (TSMZ). TSMX aims to deliver 200% of TSMC’s performance, while TSMZ seeks to track 100% of the inverse performance of the stock. It’s crucial to remember that both ETFs carry a high degree of risk and are best suited for short-term trading due to the compounding effect of volatility.
Launched earlier this month, TSMX has experienced a strong start, driven by the underlying equity’s surge ahead of the Q3 earnings announcement. Despite this initial success, heavy intraday selling volume could signal a volatile market environment for this ETF.
On the other hand, TSMZ, also launched in early October, has not been kind to bearish investors as the AI sector continues to attract bullish sentiment. The inverse fund debuted at $24.50, but currently trades at $23.82. While the inverse ETF’s performance hasn’t been favorable for bears, the pessimistic options data indicates that smart money is increasingly betting against TSMC stock.
As TSMC’s Q3 earnings report approaches, traders will be closely watching to see if the company can deliver another beat and fuel further growth in the AI sector. The results could significantly impact investor sentiment towards TSMC and, by extension, the broader AI market.
