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We came across a bullish thesis on Taiwan Semiconductor Manufacturing Company Limited (TSM) on Substack by Oguz Erkan. In this article, we will summarize the bulls’ thesis on TSM. Taiwan Semiconductor Manufacturing Company Limited (TSM)'s share was trading at $155.84 as of April 14th. TSM’s trailing and forward P/E were 22.60 and 17.48 respectively according to Yahoo Finance.
A robotic arm holding a semiconductor chip, emphasizing the precision and quality of the company's production equipment.
TSMC, the world’s largest chip manufacturer, has shown impressive growth with a 5-year revenue CAGR of 16%, a net profit margin of 40%, and a return on equity of 30%. Despite these solid financials, the stock has been declining, primarily due to investor concerns over the impact of tariffs on semiconductor demand. While it’s true that spending on semiconductors will eventually slow as hyperscalers, who are investing heavily in AI infrastructure, begin to collect returns, this is not the whole story. The need for chips will persist as AI infrastructure continues to grow, similar to how the need for more servers expanded post-1994. TSMC’s dominance in the market is evident as it increased its market share from 63% to 67% last quarter, maintaining over 90% market share in advanced chip manufacturing. Its 3nm and 2nm process yields outperform its closest competitor, Samsung, by 20% and 40%, respectively. Despite the broader economic uncertainty, the demand for semiconductors will continue to rise due to the expanding AI sector, which is only in its early stages. TSMC remains the go-to manufacturer for cutting-edge chips, regardless of who designs them. Currently trading at a forward P/E of 14, the stock presents a compelling long-term opportunity, especially for investors who see beyond the temporary slowdown in spending. Given TSMC's leading market position, technological advantages, and the relentless demand for chips, its current valuation seems attractive, even during uncertain economic conditions. The market may be overly cautious about future growth, but this represents an opportunity for investors who are confident in the continued expansion of AI and semiconductor needs.
Taiwan Semiconductor Manufacturing Company Limited (TSM) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 186 hedge fund portfolios held TSM at the end of the fourth quarter which was 158 in the previous quarter. While we acknowledge the risk and potential of TSM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.