Why Taiwan Semiconductor Stock Pulled Back Today

Actions of Taiwan Semiconductor (TSM -2.40%) moved lower today after the chipmaking giant reported a slowdown in revenue growth in its August update.

While the growth rate was still strong, it marked a deceleration from July, and the news was enough to push the stock lower.

As of 10:46 a.m. ET, the stock was down 2.6%.

Image source: TSMC.

TSMC hits the brakes

Taiwan Semiconductor has been one of the biggest beneficiaries of the artificial intelligence (AI) boom so far, as the company is the world’s largest contract chip maker, serving customers such as Apple, Nvidia, Broadcomand AMD. Because of this, its performance is closely watched as a benchmark for AI and the broader semiconductor industry.

For August, the company reported revenue of $7.8 billion, up 33 percent from a year ago but down 2.4 percent from July’s total. Year-to-date through August, revenue is now up 31% to $55.1 billion, meaning August’s growth was mostly consistent with the rest of the year.

Management would not comment on the monthly reports, but not only did revenue fall sequentially, but the growth rate, while still strong, was a significant deceleration from 45% in July.

Should investors be worried?

Most companies do not report monthly data because the numbers are often volatile and do not reflect underlying business trends. The August slowdown at TSMC could certainly be a trend rather than a trend.

The update isn’t cause for alarm right now, but it’s worth keeping an eye on the company’s monthly earnings reports, especially since some investors are worried about a bubble in AI.

If TSMC reports another deceleration in September, that could be cause for concern, but investors should also remember that generative AI will take years to take hold.

So under the circumstances, a modest sell on TSMC stock seems fair, but the report is not a reason to change your view on the stock.