HomeBusinessCan Taiwan Semiconductor Stock (NYSE:TSM) Replicate Nvidia's Performance?

Can Taiwan Semiconductor Stock (NYSE:TSM) Replicate Nvidia’s Performance?

Taiwanese semiconductor production (NYSE:TSM), the world’s largest chipmaker, recently published impressive sales figures for March. In particular Nvidia (NASDAQ:NVDA), which has gained 242.5% in the past year, relies on TSM for chip production. However, TSM’s stock performance (up 71.5% over the same period; see the comparison chart below) was relatively muted. This begs the question: can TSM replicate NVDA’s stellar performance? The answer is probably a ‘yes’.

With the ongoing AI boom, increased funding from the US, and an attractive valuation, TSM looks like an attractive buy right now.

Pre-earnings numbers indicate a positive outlook for earnings ahead

On April 10, TSM unveiled impressive revenue figures for March, marking the highest month-on-month growth since November 2022 at 34.3% year-on-year, for a total of 195.2 billion new Taiwan dollars (approximately $6.1 billion). Moreover, first-quarter revenues are expected to rise 16.5% year-over-year to 592.6 billion new Taiwan dollars (approximately US$18.4 billion).

It’s worth noting that TSM expects fiscal 2024 revenue growth in the mid-20s, fueled by strong demand for its latest nanochips amid the AI ​​wave. Furthermore, in January 2024, the company reaffirmed that its AI revenues are growing rapidly, at around 50% per year. This reaffirmation is particularly reassuring after the sales decline reported in 2023.

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TSM produces the chips and supplies them to tech titans such as Nvidia, Advanced Micro Devices (NASDAQ:AMD), and Apple (NASDAQ:AAPL). Ahead of the release of first quarter results expected on April 18, let’s take a look at what the future holds for TSM.

AI revolution will drive growth at TSM

The AI ​​revolution has taken the world by storm. I am confident that the country’s growth trajectory is sustainable. The AI ​​industry, which is still in its infancy, is expected to witness remarkable expansion across various industries and applications. According to Next Move Strategy AdviceThe industry is expected to grow into a $1.85 trillion behemoth by 2030, up from about $208 billion in 2023.

TSM’s customers are highly dependent on the company for the production of the chips they design. A tumult in demand for all things AI has led to a huge demand for AI chips.

To add to AI’s growth spurt, TSM received another boost to its manufacturing operations when it received approval for $11.6 billion in direct federal funding 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, TSM is eligible for an additional $5 billion loan.

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TSM has already invested in building two factories on the site and will use the financing to build an additional factory. The company’s total investment in all three plants is estimated at $65 billion. This marks the “largest foreign direct investment in a greenfield project in U.S. history,” the press release said.

TSM plans to produce 2 nanometer technology chips at the second factory from 2028. In the coming years, TSM should reap the benefits of huge investments that will significantly improve its production operations and bring the latest technological developments.

TSM Chairman Mark Liu shared his optimism, stating: “Our U.S. operations allow us to better support our U.S. customers, including several of the world’s leading technology companies. Our US operations will also expand our ability to pioneer future developments in semiconductor technology.”

To date, the majority of TSM’s manufacturing capabilities are located in Taiwan, which poses a geographical risk (potential threat of Chinese invasion, earthquakes, etc.). With the latest expansion announcement, that risk will be reduced. With increased production in the US, TSM will likely be able to more efficiently serve its top customers such as Nvidia, AMD and Apple, based in the US. Additionally, record high crypto prices are driving higher demand for chips, contributing to TSM’s growth. growth prospects.

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TSM is trading at a cheap valuation

In terms of valuation, TSM looks cheap. Currently, the company trades at an attractive price-to-earnings ratio of 23x, compared to much higher multiples of its peer group. Semiconductor company Advanced Micro Devices trades at a higher price-to-earnings ratio (49x), while AI marvel Nvidia trades at a price-to-earnings ratio of 36.4x.

Wall Street analysts expect TSM’s earnings per share to reach $9.02 in fiscal 2026. If TSM maintains the same price-to-earnings ratio by then, the stock price will be around $207, 45% higher than the current price. Therefore, it makes sense to consider buying TSM stock at current levels given the strong growth potential in the AI ​​space.

Is TSM Stock a Buy According to Analysts?

The Wall Street community is clearly bullish on Taiwan Semiconductor Manufacturing stock. Overall, the stock has a Strong Buy consensus rating, based on eight unanimous Buys. TSM stock’s average price target of $154.14 implies 8.2% upside potential from current levels.

Conclusion: TSM offers a strong opportunity for long-term growth

The semiconductor industry is experiencing a significant rise, largely driven by the AI ​​boom. TSM, along with its AI-focused counterparts, can benefit from this relentless demand. With strategic investments and expansion plans to meet future demands, TSM appears well positioned for sustainable growth. Given these factors, I’m inclined to buy the stock at current levels, anticipating the long-term benefits of the AI ​​potential.


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