Taiwan Semiconductor Manufacturing Company (TSM) shares have been performing well this year, driven by strong demand for the company’s advanced semiconductor technology. Semiconductor stocks like TSM saw their shares plummet last year due to surging demand from the AI, high-performance computing (HPC) and 5G sectors. However, after last year’s impressive rally, semiconductor stocks have cooled off, making the current selloff a great opportunity to buy into these stocks.
Stock price trends and room for growth
TSM shares are trading at $160.49, more than 17% below its 52-week high of $193.47. That said, the strong rise from the low of $84.02 indicates a significant uptrend. Year-to-date (YTD), the stock is up more than 54%, far outpacing the S&P 500’s 16% gain over the same period. However, the rate of gains has slowed considerably in recent months due to the market-wide decline in AI-enabled stocks.
A close-up of the complex network of integrated circuits used in logic semiconductors.
The company’s stock is currently trading at more than 26 times GAAP earnings, which many see as a welcome respite, but TSM remains on an incredible growth trajectory as the AI sector transitions from its nascent days.
Financially, the company continues to perform well. Over the past four quarters, it has delivered strong year-over-year earnings growth, far exceeding analyst expectations in both segments. In the most recent quarter, it saw incredible growth in both revenue and profits. Revenues increased 34% year-over-year to $20.7 billion, and profits increased 31% to $1.47 per share, reversing declines in the same period last year.
Looking ahead, FactSet analysts expect earnings to grow 23% this year to $6.46 per share, and then grow another 27% to $8.23 per share in 2025. That would put TSM shares at about 19.20 times forward earnings, significantly lower than the current valuation.
Risks and lessons learned
Despite the bullish outlook, risks remain. Perhaps the biggest factor to consider is that key markets such as smartphones and PCs could experience a significant slowdown, which could drastically reduce demand for TSMC’s products. Additionally, geopolitical tensions, while currently subdued, could pose a threat to TSMC’s business. That said, competition from companies such as Samsung and emerging foundries could see TSMC’s market share erode over time.
Overall, TSMC’s leadership in developing cutting-edge semiconductor technology remains unshakable. Strong customer relationships, a relatively attractive valuation, and alignment with global economic interests should continue to drive further upside for TSM stock investors. TSM ranks 9th on our latest list of the 31 most popular stocks among hedge funds. According to our database, 156 hedge fund portfolios held TSM as of the end of the second quarter, up from 135 in the previous quarter. While we recognize the potential of TSM as an AI investment, we believe some AI stocks are more likely to deliver higher returns and do so in a shorter time frame. If you’re looking for AI stocks that are as promising as TSM but trade at less than 5x TSM’s share price, check out our report on the cheapest AI stocks.
The story continues
Next: Analysts Predict New $25 Billion “Opportunity” for NVIDIA, 10 Best-of-Breed Stocks to Buy in Q3 2024 According to Bank of America.
Disclosures: None. This article was originally published on Insider Monkey.
