Taiwan Semiconductor Circuit Manufacturing Co., Ltd. (TSM) TSMC is the largest chip maker on the planet, with foundries producing cutting-edge semiconductors that drive technological advances such as artificial intelligence.
While Taiwan Semiconductor Circuit’s share price is up nearly 35% year-to-date, TSMC is still about 30% below its peak and Sachs’ average price target ahead of its 2023 Q2 earnings release on July 20. 12% below
foundation
Taiwan Semi reportedly holds nearly 60% of the important chip foundry market. Chip companies around the world rely on foundries such as TSMC for production because the cost, time and know-how required to actually manufacture chips is enormous, and it is becoming more costly and complicated day by day. It’s for
Taiwan Semi is now the dominant player in this space and continues to benefit from its founding philosophy of focusing solely on manufacturing. TSMC is one of the only pure chip makers in the market as some of its competitors design and manufacture their own chips. For example, Taiwan Semi is the only company listed in the Zacks Semiconductor – Circuit Foundry industry.
Image Source: Sachs Investment Research
Taiwan semi is Nvidia (NVDA), apple (AAPL), and many other tech giants. Taiwan Semi is a leader in his 5nm space, actively rolling out next-generation 3nm chips. At Taiwan Semi, we are already seeing increased demand for AI-focused chips and other sectors of the economy that require the smallest and fastest chips possible, such as smartphones.
TSMC is aggressively expanding outside of Taiwan amid tensions between the US and China. Taiwan Semi is currently building a semiconductor manufacturing plant in Arizona with incentives from the US government.
Other basics
TSMC posted an average revenue growth of approximately 18% over the five years from FY2018 to FY2022, with a 29% expansion in 2022. However, Taiwan Semi faces short-term headwinds in a traditionally cyclical chip market. Sachs estimates TSMC’s adjusted EPS for fiscal 2023 is expected to fall 19% on a 6% decline in sales. This year is expected to be the first year-over-year sales decline for the company since 2009.
But in a forward-looking Wall Street world, investors should be more concerned about the fact that TSMC is expected to rebound in FY24. Sachs estimates that Taiwan Semi will post 18% adjusted earnings growth before hitting record earnings in 2022. The company is also expected to report 15% revenue growth in FY24, easily hitting a record $82.01 billion.
Image Source: Sachs Investment Research
TSMC’s earnings revisions have held up recently, helping it secure a third place (hold) in the Zacks rankings. And the latest EPS forecast for FY24 is 5% above the current consensus.
TSM shares are up 950% over the past 15 years, while Zacks Tech’s stock is up 333%, including a 62% gain over the past three years compared to 37% for the tech sector. be But TSMC is down 16% over the past 24 months and remains about 30% below its all-time high.
TSMC found support near its 50-week moving average in May. A nearby chart shows a strong rebound from April’s 200-day, trading firmly above both the 50-day and 200-day bars. Taiwan semi stocks also achieved a bullish golden cross earlier this year, with the short-term moving average rising above the long-term trendline.
Valuation-wise, TSMC is trading 48% off its own highs and 30% below the ZacksTech sector, which is expected to make 17.4 times earnings. Taiwan semi stocks are also trading at a meager 12% premium over their 10-year median, even though they surged 440% over the period.
TSMC is currently paying a dividend yielding 1.4%. Of the six brokerage recommendations Sachs made to Taiwan Semi, four were “strong buys,” one was “buy,” and one was “hold.” In addition, it boasts a very strong balance sheet.
Image Source: Sachs Investment Research
Conclusion
With the U.S. and China vying for dominance in semiconductor production, the Taiwanese cicada is not in a politically ideal situation. This factor alone could turn many investors away.
But given TSMC’s sheer scale and cutting-edge capabilities, TSMC makes chips that drive innovation, and will likely continue to do so for decades to come, despite geopolitical concerns. So it’s worth remembering. And one might think he might want to consider TSMC as a way to get in touch with AI alongside Nvidia and others.
[Disclosure: Ben Rains owns TSMC shares in his own personal portfolio.]
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