Taiwan Semiconductor Manufacturing Co. (TSMC), Asia’s premier contract chipmaker, has seen its stock value plummet more than any other in the region since mid-June.

The decline is emblematic of concerns among investors regarding the sustained weakness in the chip industry, and there are indications that this downward trend may not have run its course.

Since its peak in June, TSMC shares, based in Taiwan, have tumbled by 10%, wiping out a staggering $72 billion from its market capitalization.

These losses have been attributed to apprehensions about the broader economic landscape and subdued global demand for consumer electronics. The escalating volatility skew in recent months, with traders heavily investing in bearish contracts, hints at the possibility of further declines in TSMC’s stock.

TSMC experienced a remarkable 60% share surge between October and June, fueled by the worldwide AI frenzy.

However, investors have become increasingly cautious about how much this AI craze can contribute to the company’s profitability, especially in the absence of an upswing in the smartphone and personal computer markets. Even orders for high-end AI chips have decelerated at a more rapid pace than anticipated.

According to analysts at JPMorgan Chase & Co., this situation translates to a slower recovery for TSMC heading into 2024, given the softness in significant end markets such as PCs, smartphones, and non-AI services. They noted, “With a murky macro outlook, we expect 1H 24 orders to remain sluggish.”

Furthermore, analysts are growing apprehensive about capital expenditure in light of TSMC’s warning in June that levels may dip to the lower end of its $32 to $36 billion guidance for the year. Bloomberg-compiled estimates are averaging closer to $30 billion.

While reductions in capital expenditures are often viewed positively for prudent cost management, analysts believe these recent cuts signify long-term pessimism about chip demand and concerns about a protracted recovery.

Goldman Sachs Group Inc. has significantly reduced its estimate for TSMC’s capital spending for the coming year by over 20% to $25 billion, expressing concerns that the chipmaker might postpone its expansion of overseas capacity.

If this transpires, it would represent the most minor spending since the pandemic’s start.

Bloomberg data reveals an approximately 8% downward revision in the 12-month earnings estimate for TSMC from its peak in October, contrasting with minimal changes in a broader gauge of Asia Pacific stocks.

The earlier enthusiasm surrounding TSMC’s cutting-edge 3-nanometer chip is partly to blame for the current situation. Despite being a technological breakthrough mass-produced since December, weak consumer demand has hindered its anticipated impact, causing delivery delays to significant suppliers.

Nvidia, Advanced Micro Devices Inc., and Qualcomm Inc. may even postpone their orders for these chips into 2025, as indicated by JPMorgan.

Given the lack of demand recovering to pre-COVID levels amidst macro weakness, analysts from Citigroup Inc., including Laura Chen, believe that “we do expect the recovery may take longer.”

However, there are several positives that TSMC can draw upon. Its dominant position in the foundry market, with a steady 59% share in the second quarter, remains a significant strength.

This sharply contrasts with its main rival, Samsung Electronics Co., which holds only an 11% share, as per Counterpoint Technology Market Research.

Additionally, according to Bloomberg data, TSMC continues to enjoy a favorable rating from analysts, with no sell ratings. The 12-month average price target stands 24% above its most recent closing price.

As a vital foundry for industry giants such as Nvidia and AMD, any positive surprises in its AI-related business during the third-quarter earnings next month may reignite investor interest.