TSMC ADR premium tops two-decade high as global buyers pile in
Options traders are also positioning for more gains
[HONG KONG] Global investors are ramping up bets on Taiwan Semiconductor Manufacturing Company (TSMC) ahead of its earnings, confident that the world’s leading chip foundry will remain one of the biggest winners from the artificial intelligence (AI) spending boom.
Its American depositary receipts (ADRs) are trading at the highest premium to its Taipei shares since 2002, on a 50-day moving average basis. That’s driven by growing awareness among investors around the world of the company’s role as the main outsourced supplier of chips for Nvidia and many others.
The ADRs have surged 54 per cent this year, outpacing the 38 per cent gain in the Taiwan listing, as global investors boost bullish bets. Earnings due after Thursday’s (Oct 16) close could be the next catalyst following last week’s better-than-expected sales.
“We are positive on TSMC’s outlook and expect it to raise its full-year 2025 sales growth outlook,” said Rex Chen, a Taipei-based fund manager at Capital Investment Trust.
TSMC’s ADRs tend to trade at a premium because they are fungible with Taipei-listed shares, unlike the latter, which require regulatory approval to be converted into US-listed depositories. Still, Chen said that the recent premium shows that international investors are even more optimistic than local investors, which could lead to a re-rating thanks to the AI boom.
Strong orders from Apple for chips to power the most advanced iPhone models, as well as foundry service for Nvidia’s Blackwell, are expected to fuel TSMC’s revenue in the coming quarters. Investor enthusiasm was boosted this week as TSMC client Broadcom signed a blockbuster deal with OpenAI.
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TSMC is likely to “sound quite bullish on data centre AI demand” and signal demand for its leading-edge wafers, including those used in Apple products, will remain tight to 2026, JPMorgan Chase analysts, including Gokul Hariharan, wrote in a research note.
Meanwhile, ASML Holding’s third-quarter results, released on Wednesday, show that the AI boom continues to drive demand for its cutting-edge chipmaking machines, a positive sign for its customer TSMC.
Options traders are also positioning for more gains. The cost of bullish contracts on the ADRs has climbed to the highest level this year relative to bearish bets, rebounding from a low in April, according to data compiled by Bloomberg.
The US-China trade war remains a concern, and one focus of TSMC’s earnings call will be how the chipmaker plans to mitigate the potential impact on its supply of materials and tools, according to Bloomberg Intelligence analyst Charles Shum. He added that strong AI demand will likely offset such headwinds.
The stock climbed as much as 1.7 per cent to a fresh record in Taipei on Thursday ahead of the earnings report. It’s looking overheated on some technicals, and its valuation has climbed from a trough three years ago.
Still, even as global tech multiples draw scrutiny amid bubble fears, TSMC trades at 27 times forward estimated earnings, cheaper than more than half the stocks in the Philadelphia Semiconductor Index.
Capital Investment Trust’s Chen, whose fund holds TSMC as its largest position, thinks the chipmaker’s valuation has room to expand in the long term. He expects the company to raise sales growth guidance to 32 to 34 per cent from the current 30 per cent for this year.
“We are confident about its growth outlook this and next year as applications of AI widen,” Chen said. “The current development of AI is like when Apple launched the iPhone 3 or iPhone 4, still at an early stage.” BLOOMBERG
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