Taiwan Semiconductor Manufacturing Company Ltd. (NYSE:TSM) stock rose about 1% Friday as semiconductor shares outperformed the broader market amid renewed interest in major chipmakers.

The gains came as the company explored ways to reduce its reliance on Chinese rare earths and received a credit rating upgrade from Moody's Ratings.

Technology stocks gained 0.53%, while the Nasdaq Composite edged up 0.10%. The S&P 500 fell 0.48%, and the Dow Jones Industrial Average dropped 1.19%.

Market breadth remained weak, with only two of the S&P 500's 11 sectors advancing. The advance-decline ratio stood near 0.2, signaling widespread selling pressure.

Energy led the market with a 2.61% gain, followed by technology.

TSMC Looks To Reduce Dependence On Chinese Rare Earths

TSMC is exploring alternatives to rare-earth components in factory equipment as it seeks to protect its operations from potential Chinese export restrictions.

The company has asked suppliers about using rare-earth-free motors in factory automation equipment, Reuters reported Thursday, citing people familiar with the discussions.

Rare-earth magnets are widely used in automated manufacturing equipment. Supply disruptions could affect the production of advanced chips used in artificial intelligence, smartphones and data centers.

However, the discussions remain in their early stages.

Moody's Upgrades TSMC On Strong AI Demand

Moody's Ratings upgraded TSMC's credit rating to Aa2 from Aa3 on Wednesday, citing its leadership in advanced chip manufacturing, strong finances and growing AI demand.

The agency also revised its outlook to stable from positive.

Moody's expects TSMC's revenue to grow 30% to 45% annually over the next 12 to 18 months. It also projects adjusted EBITDA margin will increase to about 75%, up from 72% last year.

The rating agency expects TSMC to maintain positive free cash flow and low debt levels despite rising investments in manufacturing capacity.

However, heavy capital spending and the concentration of production in Taiwan remain key risks, the Taipei Times reported Thursday.

Deadly Construction Accident Halts Work

TSMC also faces construction disruptions following an accident that killed four workers at its Kaohsiung facility in Taiwan on Tuesday.

The company suspended steel-structure construction at the site and similar work at its other construction projects across Taiwan.

TSMC is cooperating with authorities and contractors to investigate the accident and implement safety measures, Bloomberg reported Wednesday.

The Kaohsiung facility is a key part of TSMC's advanced chip manufacturing expansion, including its 2-nanometer production plans.

Technical Analysis: Long-Term Uptrend Faces Pressure

TSMC remains in a long-term uptrend, although recent selling has weakened its short-term momentum.

The stock trades 4.7% above its 200-day simple moving average (SMA) of $397.62. Its 50-day SMA also remains above the 200-day average, signaling a bullish long-term trend.

However, shares trade 6.5% below their 20-day SMA of $445.50 and 4.1% below their 50-day SMA of $434.08.

The moving average convergence divergence (MACD) indicator remains below its signal line. Its negative histogram suggests buying momentum has weakened.

Traders are watching two key price levels:

• Resistance: $429.50. This level sits near the 100-day SMA of $429.72. A move above it could strengthen the short-term outlook.
• Support: $407.50. A break below this level could trigger additional selling pressure.

The stock would need to reclaim its shorter-term moving averages to signal a stronger recovery.

Analyst Outlook

Analysts maintain a consensus Buy rating, with an average price forecast of $553.63. Recent analyst actions include:

• Barclays: Maintained Overweight and raised its price forecast to $670 on Oct. 16.
• D.A. Davidson: Maintained Buy and a $500 price forecast on Oct. 16.
• Needham: Maintained Buy and raised its price forecast to $560 on Oct. 15.

The stock trades at approximately 31.5 times earnings, reflecting a premium valuation.

ETFs With TSMC Exposure

TSMC is a major holding in several exchange-traded funds, including the First Trust WCM International Equity ETF (NYSE:WCMI), Brown Advisory Flexible Equity ETF (NASDAQ:BAFE) and Harbor International Compounders ETF (NYSE:OSEA).

Changes in TSMC's share price can affect the performance of these funds, depending on their portfolio exposure.

TSM Stock Price Action

TSMC shares were up 1.03% at $416.58 at the time of publication Friday, according to market data.