Taiwan Semiconductor Manufacturing Company (TSM) shares have surged 29.6% over the past six months, outperforming the 13.1% return of the Zacks Computer and Technology sector and the 10.7% return of the S&P 500. Expectations of strong third-quarter sales growth on the back of growing adoption of artificial intelligence (AI) appear to be fueling the bull market.
The company is a major player in the semiconductor industry, which is seeing a robust recovery due to optimistic outlooks around AI and generative AI. Semiconductors and chips, which are essential for AI development, are in high demand from technology giants. Strong adoption of Internet of Things (IoT), blockchain, and cloud computing solutions are stimulating the demand for semiconductors.
TSM is well positioned to capitalize on growing demand for semiconductors, backed by its robust chip manufacturing capabilities and wafer manufacturing process strength, and is set to produce 28% of the world’s semiconductors by 2023.
Price trends over 6 months
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Is now the right time to buy TSM stock for the potential upside? Let’s take a look at the stock’s fundamentals.
Leading Technology Portfolio Accelerates Customer Momentum
Taiwan Semiconductor’s strengths in advanced technologies such as 3 nanometers (nm), 5nm, 7nm, 16nm and 28nm are driving its sales growth.
In the second quarter of 2024, 3nm, 5nm, 7nm, 16nm, and 28nm accounted for 15%, 35%, 17%, 9%, and 8% of the company’s wafer sales, respectively.
The company is attracting attention for its expansion into new applications such as HPC (high performance computing) and smartphone apps.
Thanks to its robust fin field effect transistors (FinFETs) with advanced technologies, TSM continues to see strong momentum across HPC, smartphone, automotive, IoT and digital home appliance applications, which contributed 52%, 33%, 6%, 5% and 2% respectively to its net revenue in the quarter ended June.
The company’s 3nm FinFET, 4nm FinFET, 5nm FinFET, 6nm FinFET, 7nm FinFET and 12nm/16nm FinFET continue to gain momentum across HPC applications.
TSM’s 3nm FinFET Enhance, 4nm FinFET Plus, 5nm FinFET Plus, and 3nm, 4nm and 5nm FinFET are gaining momentum across smartphone applications.
The company is focusing on increasing production of 3nm.
The company has also made great strides in developing 2nm to address the growing needs of energy-efficient computing solutions and nearly every AI innovator. The technology is designed to deliver full-node performance and power benefits of 10-15% speed improvement at the same power, or 25-30% power improvement at the same speed, and 15% or more chip density increase.
Taiwan Semiconductor’s semiconductor facility network continues to expand and currently includes one 150mm wafer fab, six 200mm wafer fabs, six 300mm wafer fabs, and five advanced back-end fabs, making good progress towards achieving its production ramp-up goals.
Customer acquisition momentum is driven by growing adoption of multi-project wafer processing services that enable customers to reduce mask costs.
Leading technology companies are investing billions of dollars in AI, and Taiwan Semiconductor is well-positioned to capitalize on this multi-billion dollar opportunity with its strong advanced technology portfolio.
The company’s customer base includes many leading semiconductor companies, including NVIDIA NVDA, Advanced Micro Devices (AMD), Amazon Web Services, Broadcom, Infineon Technologies, Intel INTC, MediaTek, NXP Semiconductors, Qualcomm and Sony.
It’s worth noting that TSM is one of the largest manufacturers of NVIDIA chipsets.
Expanding relationships with these giants is expected to continue to drive Taiwan Semiconductor’s revenue growth.
The story continues
Impressive Guidance and Upward Revision Considerations
Taiwan Semiconductor expects strong adoption of AI and smartphones to drive demand for its cutting-edge process technology in the third quarter of 2024. The company forecasts sales in the range of $22.4 billion to $23.2 billion. The Zacks Consensus Estimate is calling for third-quarter sales of $22.72 billion, representing year-over-year growth of 31.5%.
The consensus estimate for third-quarter 2024 earnings is $1.72 per share, implying growth of 33.4% year over year. This estimate has been revised upward by 10.3% in the past 60 days.
The company expects its revenue to grow by more than 20% in 2024 due to increased demand for high-end chips used in AI applications.
The Zacks Consensus Estimate is calling for revenues of $85.62 billion in 2024, representing year-over-year growth of 23.6%.
The consensus estimate for 2024 earnings is $6.45 per share, implying 24.5% growth from the prior year. This estimate has been revised upward by 1 cent in the past 30 days.
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Attractive evaluation
TSM’s attractive valuation should attract value-seeking investors, as the company’s shares are currently trading at a discounted 12-month forward P/E multiple of 21.82, below the industry average of 27.12, which reflects a good entry point for investors.
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Conclusion
Taiwan Semiconductor’s leading position in semiconductor manufacturing, strong technology portfolio, robust customer base and expanding chip foundry operations make it an attractive investment opportunity for growth-seeking investors.
The company’s solid financials, attractive valuation, and upwardly revised forecasts point to promising future prospects. In this era of rapid growth in AI, TSM stock is poised for bright growth, so we recommend investors buy the company’s shares.
Taiwan Semiconductor is currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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