Taiwan Semiconductor Manufacturing (NYSE:TSM), the world’s largest chipmaker, recently posted impressive revenue figures for March. Notably, Nvidia (NASDAQ:NVDA), which has gained 242.5% previously yr, relies on TSM for chip manufacturing. Nevertheless, TSM’s stock performance (up 71.5% over the similar period; see the comparison image below) has been relatively subdued. This begs the query: can TSM replicate NVDA’s stellar performance? The reply might be going a “yes.”
With the continued AI boom, increased funding from the U.S., and a beautiful valuation, TSM looks like a compelling buy without delay.
Pre-Earnings Numbers Point to Positive Outlook for Upcoming Earnings
On April 10, TSM unveiled impressive revenue figures for March, marking the highest month-over-month growth since November 2022 at 34.3% year-over-year, totaling 195.2 billion Recent Taiwan dollars (roughly $6.1 billion). Furthermore, Q1 revenues are projected to increase by 16.5% year-over-year, reaching 592.6 billion Recent Taiwan dollars (around $18.4 billion).
It’s price noting that TSM anticipates mid-20% revenue growth for FY 2024, fueled by strong demand for its latest nano chips amid the AI surge. Moreover, the company reaffirmed in January 2024 that its AI revenues are growing rapidly at roughly 50% annually. This reaffirmation is particularly reassuring following the revenue decline reported in 2023.
TSM manufactures the chips and supplies them to tech titans like Nvidia, Advanced Micro Devices (NASDAQ:AMD), and Apple (NASDAQ:AAPL). Ahead of its Q1 earnings release expected on April 18, let’s take a have a take a look at what the long term holds for TSM.
AI Revolution Will Spur Growth at TSM
The AI revolution has taken the world by storm. I firmly consider that its growth trajectory is enduring. The AI industry, still in its infancy, is projected to witness remarkable expansion across diverse industries and applications. In accordance with Next Move Strategy Consulting, the industry is anticipated to burgeon right right into a $1.85 trillion behemoth by 2030, as compared with around $208 billion in 2023.
TSM’s customers heavily depend upon the company for the production of chips they design. An uproar in demand for all of the things AI has led to an unlimited demand for AI chips.
In order so as to add to the AI growth spurt, TSM got yet yet one more boost to its manufacturing operations, since it received approval for direct federal funding price $11.6 billion under the U.S. government’s CHIPS Act. The company will receive $6.6 billion in grants to expand its manufacturing facility in Phoenix, Arizona. In addition to, TSM is eligible for an incremental loan of $5 billion.
TSM has already invested in constructing two plants at the situation and might use the funding to construct an extra factory. The firm’s total investment across all three factories is estimated at $65 billion. This marks the “largest foreign direct investments in a greenfield project in U.S. history,” consistent with the press release.
TSM plans to offer 2-nanometer technology chips on the second factory starting in 2028. Within the approaching years, TSM should reap some great benefits of massive investments that will greatly enhance its manufacturing operations and convey in the latest technological advancements.
Sharing his optimism, TSM Chairman Mark Liu stated, “Our U.S. operations allow us to raised support our U.S. customers, which include several of the world’s leading technology corporations. Our U.S. operations will even expand our capability to trailblaze future advancements in semiconductor technology.”
Up to now, nearly all of TSM’s manufacturing capabilities are based in Taiwan, which poses a geographical risk (potential threat of Chinese invasion, earthquakes, etc.). With the latest expansion announcement, that risk will likely be alleviated. With increased manufacturing throughout the U.S., TSM will likely more efficiently cater to its top-notch clients like Nvidia, AMD, and Apple based throughout the U.S. On top of that, record-high crypto prices are creating higher demand for chips, adding to TSM’s growth outlook.
TSM Is Trading at a Low price Valuation
By means of its valuation, TSM looks low-cost. Currently, it’s trading at a beautiful forward P/E ratio of 23x as compared with much higher multiples of its peer group. Semiconductor company Advanced Micro Devices is trading at a greater forward P/E multiple (49x), while the AI prodigy Nvidia is trading at a forward P/E of 36.4x.
Wall Street analysts expect TSM’s EPS to achieve $9.02 in FY 2026. If TSM keeps the similar forward P/E multiple by then, its share price will likely be about $207, 45% higher than the current price. On account of this fact, it is sensible to take into consideration buying TSM stock at current levels, given the strong growth potential throughout the AI space.
Is TSM Stock a Buy, In accordance with Analysts?
The Wall Street community is clearly optimistic about Taiwan Semiconductor Manufacturing stock. Overall, the stock commands a Strong Buy consensus rating based on eight unanimous Buys. TSM stock’s average price goal of $154.14 implies 8.2% upside potential from current levels.
Conclusion: TSM Presents a Strong Opportunity for Long-Term Growth
The semiconductor industry is experiencing a serious surge, largely driven by the AI boom. TSM, along with its AI-focused counterparts, stands to attain from this relentless demand. With strategic investments and expansion plans in place to satisfy future demands, TSM appears well-positioned for sustained growth. Considering these elements, I’m inclined to buy the stock at its current levels, anticipating long-term benefits from its AI potential.