SOX Nears Prior Low as Taiwan Stocks Wait for Selling to Clear
US tech stocks plunged after earnings, with the SOX index only about 3% from its July low, while Japanese and Korean stocks tumbled, raising catch-up selling pressure on Taiwan stocks. The market is watching the late-October Fed meeting and the November 4 US midterm election, with year-end profit-taking emerging early. Institutional investors see opportunities returning after the selling clears, naming TSMC, OSAT, PCB, Formosa Plastics Group and financial holding stocks as worth watching on weakness. The Nasdaq and SOX have the highest November upside probability of the year, with SOX at 81.25%, while Taiwan stocks have a 68.4% November upside probability over the past 20 years, second only to December at 73.68%.
CoreWeave Credit Storm Hits AI Supply Chain
The panic stems from CoreWeave borrowing heavily with high leverage to build data centers, with its 5-year CDS spread once breaching 1194 bps, implying a 60-64% 5-year default probability. As of end-June, notes and loans totaled about $35.1 billion, with total debt and lease obligations of $51.6 billion, yields surging past 15.6-16%, capex of $36.4 billion this year and an estimated $47.9 billion next year, quarterly interest expense of $640 million, and the share price down over 50% from its high and below its mid-July low. JPMorgan upgraded from Neutral to Buy, noting loans are collateralized by Nvidia GPUs and backed by a $104 billion contract backlog, while Jensen Huang also said operations are healthy with no bailout needed.
Facebook Cash Better Than Expected, Oil Prices and Earnings Roil Market
Facebook's earnings showed slightly downward-revised capex growth, with net cash outflow of less than $1 billion, better than the nearly $10 billion outflow estimated, rising after the announcement. The market remains focused on Google, Microsoft and Amazon cash flows, with even Google posting a net outflow last quarter. Houthi attacks in Yemen on Saudi Arabia and nearby refineries and transport facilities kept WTI oil at $95-100. Western Digital, SK Hynix, Applied Materials, KLA, Intel, Broadcom, Cisco, NBIS and COHR had fallen below July lows, with focus ahead on whether Google, Nvidia, Apple, Amazon, Facebook, TSMC and Micron can lead a rebound.
TSMC Eyes 3,000, Formosa Plastics and Financials Support on Weakness
TSMC is expected to grow revenue 41% this year, with Q3 gross margin of 66.4% and EPS of NT$29.43, next-year EPS challenging NT$140, P/E up to 22x and share price expected above NT$3,000. At NT$2,400, it is up 54.8% this year, with a 100% win rate buying in late October through end-February over the past eight years. As of October 22, Korean gains narrowed from 92% to 30%, Japanese from 44.6% to 23%, and Taiwan from 71.5% to 59%, with margin balances at NT$633.8 billion near the peak of NT$653.3 billion, the index correcting nearly 4,000 points from 49,968 over eleven trading sessions. Formosa Petrochemical EPS is challenging NT$10 this year with NT$5-6 dividends next year, Nan Ya Plastics EPS is challenging NT$18 and NT$22 this year and next, with group market value doubling to NT$7 trillion; the three financial sectors earned NT$1.17 trillion in the first three quarters, challenging NT$1.5 trillion for the year, with Fubon Financial, Cathay Financial and CTBC Financial dividends seen strong next year.