Taiwan Semiconductor Manufacturing Company TSM, the world’s largest semiconductor foundry and also known as TSMC, last week announced another impressive earnings report for the third quarter of 2024. TSMC has once again exceeded expectations and continues to solidify its leadership in the advanced chip industry. Establish yourself as a long-term winner.
With solid growth across key financial metrics and growing demand for cutting-edge technology, the question remains: Should you buy TSM stock?
The answer leans heavily toward yes, as Taiwan Semiconductor’s strong fundamentals, strategic growth initiatives, and leadership in high-growth sectors make it an attractive investment.
In the third quarter of 2024, Taiwan Semiconductor’s revenue reached $23.5 billion, an increase of 36% year-on-year and 12.9% quarter-on-quarter. Net income also increased 51% year over year to $10.06 billion, highlighting the company’s ability to grow profitably. Earnings per ADR unit increased 50.4% from the prior year period to $1.94, beating the Zacks Consensus Estimate of $1.74.
These impressive results are driven by strong demand for 3nm and 5nm technologies, which now account for 52% of total wafer revenue. The company’s gross margin improved to 57.8%, reflecting an improvement of 350 basis points year over year. Operating profit margin rose to 47.5% from 41.7% in the same period last year. These numbers confirm that TSMC’s operational efficiency is high despite rising costs, making it one of the most profitable companies in the semiconductor industry.
So far this year, Taiwan Semiconductor has reported better-than-expected results in all three quarters. Investors have already responded favorably, with TSM stock up 93% so far in 2024, outperforming broader indexes such as the S&P 500’s 22.9% and the Zacks Computer & Technology sector’s 26.2%. are.
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Despite this impressive rally, TSM stock remains undervalued. The stock trades at a trailing 12-month price-to-earnings ratio of 24.52x, below the sector average of 26.89x, making it an attractive entry point.
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The driving force behind Taiwan Semiconductor’s impressive performance is its technological leadership. In the reported quarter, the company’s 3nm (nanometer) technology contributed 20% to wafer revenue, while 5nm technology added another 32%. These cutting-edge processes are in high demand, especially as the need for faster and more efficient chips accelerates in the artificial intelligence (AI) and high-performance computing (HPC) fields.
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Currently, more than 51% of Taiwan Semiconductor’s revenue comes from AI and HPC platforms, both of which are experiencing explosive growth. AI-related server processors are expected to triple in 2024, and TSMC is poised to greatly benefit from this wave of demand. As AI and 5G adoption accelerates, Taiwan Semiconductor’s advanced technology puts it well ahead of competitors like Samsung and Intel, making the company’s stock an attractive long-term investment .
Taiwan Semiconductor’s fourth quarter outlook is incredibly optimistic. The company is projecting sales of $26.1 billion to $26.9 billion, which would represent a 35% year-over-year increase at the midpoint. The company’s gross margins are expected to remain strong at 57% to 59%, supported by higher capacity utilization and continued demand for 3nm and upcoming 2nm nodes. These advanced technologies keep TSMC at the forefront of semiconductor innovation.
Additionally, Taiwan Semiconductor continued to deliver strong cash flow, posting $37.62 billion in the first three quarters of 2024. With full-year capital expenditures expected to exceed $30 billion, TSM is strategically investing in future growth to ensure it can meet growing demand. From AI, 5G and the automotive industry.
The Zacks Consensus Estimates for this year and next year indicate continued growth momentum for Taiwan Semiconductor.
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Taiwan Semiconductor’s strong customer base includes leading companies in the semiconductor industry, such as NVIDIA NVDA, Amazon Web Services, Broadcom AVGO, Intel INTC, and Qualcomm. In 2023, 70% of TSMC’s revenue will come from just 10 major customers, and this expanded relationship with industry leaders bodes well for future sales growth.
These long-term partnerships ensure a stable growth platform for the semiconductor giant as companies continue to rely on TSM for cutting-edge chips.
Taiwan Semiconductor’s strong Q3 2024 performance and leadership in advanced chip manufacturing make Taiwan Semiconductor a very attractive investment. The company’s solid profit margins, accelerating demand from high-growth areas such as AI and HPC, and strategic long-term investments position Taiwan Semiconductor for continued success. Additionally, with the stock trading at a discount relative to the sector, now is a great time to buy TSM stock and take advantage of its industry advantage and growth potential.
Taiwan Semiconductor has a favorable combination of a Zacks Rank #2 (Buy) and a VGM Score of B. Our research shows that when combined with a Zacks Rank #1 (Strong Buy) or #2, you get a stock with a VGM Score of A or B. , providing investors with the best investment opportunities. Therefore, the stock appears to be an attractive investment proposition at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.
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