Morgan Stanley says this chip giant will be a long-term tech leader — and gives it 30% upside

Published Tue, Apr 11 20238:04 PM EDT

Semiconductor stocks have rebounded this year after a difficult 2022. The iShares Semiconductor ETF , which tracks the sector, is up nearly 25% year-to-date, well outperforming major U.S. indexes. But there have been some recent shocks from the famously cyclical sector, with Taiwan Semiconductor Manufacturing Company (TSMC) reporting a decline in monthly revenue for the first time in nearly four years, while Samsung reported a 96% drop in quarterly profit. The South Korean chip maker also said it will cut memory chip production amid slowing global growth, dwindling demand and oversupply. Wall Street is looking past the bad news, however, with a raft of investment banks issuing positive commentary on both chip stocks in the wake of the announcements. TSMC When it comes to TSMC, Morgan Stanley is staying bullish despite expectations of near-term pressure on the stock. "Investors continue to ask about our view on TSMC's full-year guidance. We believe the company could tone down its full-year revenue outlook slightly and give more conservative 2023 capex guidance in view of milder semi demand recovery in 2H23. In the near term, we also expect TSMC's 2Q23 revenue guidance to be weaker than expected," Morgan Stanley's analysts, led by Charlie Chan, wrote in a note on Apr. 10. With TSMC's first-quarter earnings report due on Apr. 20, the bank's base case scenario will see the chip giant guiding for a longer-than-expected inventory correction. Nevertheless, Morgan Stanley thinks TSMC is still a buy. "Stay overweight on TSMC into 1Q23 results for long-term technology leadership," it said, retaining its price target of 700 Taiwanese dollars ($22.97) on the stock. That represents potential upside of about 30% from its closing price on Monday. And it's not the only bank that's bullish on TSMC. Over 90% of analysts covering the stock rate it a "buy," and give it average potential upside of 16.9%. Tim Seymour, founder and chief investment officer of Seymour Asset Management, believes the dip in TSMC's share price is a buying opportunity . "You want any chance to buy this stock on weakness," Seymour said on CNBC's "Fast Money" on Monday. "Right now, that's a stock everyone should want to own, and they should probably want to own it somewhere around here, which is 16 times [earnings]," he added. "You could probably get it cheaper because I just think semis have run so far." — CNBC's Tanaya Macheel contributed to reporting