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Shares of Taiwan Semi (TSM -2%) continue to steadily decline, down nearly 10% over the past month, which followed a substantial rally off August 5 lows. Today's underlying driver is a minor cooldown in August revenue growth following a robust July. The world's largest chip manufacturer reported August revenue growth of 33.0% yr/yr, underpinning a healthy demand for its chips and reflecting continuous AI-related orders; AI giants like NVIDIA (NVDA) and Advanced Micro (AMD) are some of TSM's customers. However, on a mo/mo basis, August revs ticked 2.4% lower.

• Why was this minor dip enough to trigger selling pressure today? The market has started expressing concerns over an economic slowdown. For instance, even after NVDA reported another impressive beat-and-raise in JulQ last month, its shares shed over -6%. Further, Broadcom (AVGO), a prominent AI chip and software stock, sold off despite lifting its FY24 (Oct) AI revenue outlook last week; a moderately lower-than-expected Q4 consolidated revenue forecast sparked growth worries.
  • Against this recent backdrop, any seemingly minor blemishes, such as a 2.4% mo/mo drop in revenue for TSM, can garner a concerning response.
• It is also worth noting that TSM was lapping a less challenging yr/yr comparison in August compared to July. Last year, revenue fell by 13.5% yr/yr in August versus a 4.9% drop in July. However, this year, TSM delivered a less impressive 33.0% pop in August revs compared to a 44.7% improvement in July.
• Nevertheless, despite growth concerns, TSM still recorded a robust yr/yr growth rate for August, sustaining its excellent recovery momentum this year following a lackluster 2023. As the company's Q2 results illustrated, AI demand has not budged. In fact, management raised its FY24 revenue outlook considerably while keeping its growth prediction for the overall semiconductor market unchanged, reflecting confidence in the AI frenzy persisting through the back half of the year.

The main takeaway from today's adverse reaction to an otherwise decent growth rate for August is that some tech stocks, specifically those that have soared over the past year (like TSM), might be finding themselves on relatively shaky ground. Any blips or speed bumps can ignite quick downside action. Still, when taking a step back, TSM's monthly revenue growth throughout FY24 has been tremendous. While it helps that TSM is lapping an awful year that saw growth contract yr/yr in all but three months, its increased revenue outlook for the year alongside bullish remarks on the state of AI, noting in July that demand for the technology continues to accelerate, should help put broader growth fears at ease.