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Is Taiwan Semiconductor (TSM) a Must-Buy on 29.6% Rise in 6 Months?
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Taiwan Semiconductor Manufacturing Company Ltd. (TSM - Free Report) shares have shot up 29.6% in the past six months, outperforming the Zacks Computer & Technology sector and the S&P 500 Index’s returns of 13.1% and 10.7%, respectively. Expectations of strong top-line growth in the third quarter on the back of the increasing proliferation of Artificial Intelligence (AI) appear to have catalyzed this bullishness.
The company has been a major player in the semiconductor industry, which is witnessing a solid rebound on the optimism surrounding AI and generative AI. Semiconductors or chips — those necessary for AI developments — have been in high demand from tech giants. The solid uptake of the Internet of Things (IoT), blockchain and cloud computing solutions is fueling demand for semiconductors.
TSM, on the back of its robust chip manufacturing capabilities and strength in wafer fabrication processes, is capitalizing on the growing demand for semiconductors. In 2023, it produced 28% of the world’s semiconductors, which is noteworthy.
Six-Month Price Performance
Image Source: Zacks Investment Research
Is the time right to buy TSM’s shares for potential upside? Let us take a look at the stock’s fundamentals.
Taiwan Semiconductor’s strength in its advanced technologies, such as 3-nanometer (nm), 5nm, 7nm, 16nm and 28nm, is driving its top-line growth.
In second-quarter 2024, 3nm, 5nm, 7nm, 16nm and 28nm accounted for 15%, 35%, 17%, 9% and 8% of the company’s wafer revenues, respectively.
The company’s expansion into new applications, such as HPC (high-performance computing) and smartphone applications, is noteworthy.
TSM is constantly witnessing strong momentum across HPC, smartphone, automotive, IoT and digital consumer electronics applications on the back of robust Fin Field-Effect Transistor (FinFET), which is powered by its advanced technologies. In the June-end quarter, these applications contributed 52%, 33%, 6%, 5% and 2% to net revenues, respectively.
The company’s 3nm FinFET, 4nm FinFET, 5nm FinFET, 6nm FinFET, 7nm FinFET and 12nm/16nm FinFET are constantly driving its momentum across the HPC applications.
TSM’s 3nm FinFET enhanced, 4nm FinFET plus and 5nm FinFET plus, along with 3nm, 4nm and 5nm FinFETs, are driving its momentum across smartphone applications.
The company is making strong efforts to ramp up the production of 3nm.
It is also making strides in the development of 2nm, which is capable of addressing the growing need for energy-efficient computing solutions and almost all AI innovators. This technology is designed to deliver a full node performance and power benefit, with 10-15% speed improvement at the same power, or 25-30% power improvement at the same speed, and more than 15% chip density increase.
Taiwan Semiconductor’s expanding network of semiconductor facilities, which currently includes one 150mm wafer fab, six 200mm wafer fabs, six 300mm wafer fabs and five advanced backend fabs, bodes well for its production ramp goals.
The growing adoption of its multi-project wafer processing service, which allows customers to reduce mask costs, is driving its customer momentum.
Billions of dollars are being plowed into AI by big tech companies and Taiwan Semiconductor is well-poised to capitalize on this billion-dollar opportunity on the back of its strong portfolio of advanced technologies.
The company’s customer base includes many semiconductor bigwigs, such as NVIDIA (NVDA - Free Report) , Advanced Micro Devices (AMD - Free Report) , Amazon Web Services, Broadcom, Infineon Technologies, Intel (INTC - Free Report) , MediaTek, NXP Semiconductors, Qualcomm and Sony.
The fact that TSM is one of the largest manufacturers of NVIDIA’s chipsets is noteworthy.
Growing relationships with these behemoths are expected to continue driving Taiwan Semiconductor’s top-line growth.
A Look at Impressive Guidance & Upward Estimate Revision
For third-quarter 2024, Taiwan Semiconductor expects the solid adoption of AI and smartphones to boost the demand for its leading-edge process technologies. It projects revenues between $22.4 billion and $23.2 billion. The Zacks Consensus Estimate for third-quarter revenues is pegged at $22.72 billion, indicating year-over-year growth of 31.5%.
The consensus mark for third-quarter 2024 earnings is pegged at $1.72 per share, suggesting year-over-year growth of 33.4%. The estimate has been revised upward by 10.3% in the past 60 days.
The company expects above 20% growth in 2024 revenues on rising demand for high-end chips used in AI applications.
The Zacks Consensus Estimate for 2024 revenues is pegged at $85.62 billion, indicating year-over-year growth of 23.6%.
The consensus mark for 2024 earnings is pegged at $6.45 per share, indicating year-over-year growth of 24.5%. The estimate has been revised upward by a penny in the past 30 days.
Image Source: Zacks Investment Research
Attractive Valuation
TSM’s attractive valuation should beckon investors seeking value. The stock is currently trading at a discount with a forward 12-month P/E multiple of 21.82X, lower than the sector’s average of 27.12X. This reflects a good entry point for the investors.
Image Source: Zacks Investment Research
Conclusion
Taiwan Semiconductor’s leading position in the semiconductor manufacturing space, robust portfolio of technologies, solid customer momentum and expanding chip manufacturing fabs present an attractive investment opportunity for growth-seeking investors.
Its solid financial health, attractive valuation and upward estimate revisions paint a promising picture. We recommend investors to buy the TSM stock as it has upbeat growth prospects in this booming AI era.
Image: Bigstock
Is Taiwan Semiconductor (TSM) a Must-Buy on 29.6% Rise in 6 Months?
Taiwan Semiconductor Manufacturing Company Ltd. (TSM - Free Report) shares have shot up 29.6% in the past six months, outperforming the Zacks Computer & Technology sector and the S&P 500 Index’s returns of 13.1% and 10.7%, respectively. Expectations of strong top-line growth in the third quarter on the back of the increasing proliferation of Artificial Intelligence (AI) appear to have catalyzed this bullishness.
The company has been a major player in the semiconductor industry, which is witnessing a solid rebound on the optimism surrounding AI and generative AI. Semiconductors or chips — those necessary for AI developments — have been in high demand from tech giants. The solid uptake of the Internet of Things (IoT), blockchain and cloud computing solutions is fueling demand for semiconductors.
TSM, on the back of its robust chip manufacturing capabilities and strength in wafer fabrication processes, is capitalizing on the growing demand for semiconductors. In 2023, it produced 28% of the world’s semiconductors, which is noteworthy.
Six-Month Price Performance
Image Source: Zacks Investment Research
Is the time right to buy TSM’s shares for potential upside? Let us take a look at the stock’s fundamentals.
Advanced Technology Portfolio Drives Customer Momentum
Taiwan Semiconductor’s strength in its advanced technologies, such as 3-nanometer (nm), 5nm, 7nm, 16nm and 28nm, is driving its top-line growth.
In second-quarter 2024, 3nm, 5nm, 7nm, 16nm and 28nm accounted for 15%, 35%, 17%, 9% and 8% of the company’s wafer revenues, respectively.
The company’s expansion into new applications, such as HPC (high-performance computing) and smartphone applications, is noteworthy.
TSM is constantly witnessing strong momentum across HPC, smartphone, automotive, IoT and digital consumer electronics applications on the back of robust Fin Field-Effect Transistor (FinFET), which is powered by its advanced technologies. In the June-end quarter, these applications contributed 52%, 33%, 6%, 5% and 2% to net revenues, respectively.
The company’s 3nm FinFET, 4nm FinFET, 5nm FinFET, 6nm FinFET, 7nm FinFET and 12nm/16nm FinFET are constantly driving its momentum across the HPC applications.
TSM’s 3nm FinFET enhanced, 4nm FinFET plus and 5nm FinFET plus, along with 3nm, 4nm and 5nm FinFETs, are driving its momentum across smartphone applications.
The company is making strong efforts to ramp up the production of 3nm.
It is also making strides in the development of 2nm, which is capable of addressing the growing need for energy-efficient computing solutions and almost all AI innovators. This technology is designed to deliver a full node performance and power benefit, with 10-15% speed improvement at the same power, or 25-30% power improvement at the same speed, and more than 15% chip density increase.
Taiwan Semiconductor’s expanding network of semiconductor facilities, which currently includes one 150mm wafer fab, six 200mm wafer fabs, six 300mm wafer fabs and five advanced backend fabs, bodes well for its production ramp goals.
The growing adoption of its multi-project wafer processing service, which allows customers to reduce mask costs, is driving its customer momentum.
Billions of dollars are being plowed into AI by big tech companies and Taiwan Semiconductor is well-poised to capitalize on this billion-dollar opportunity on the back of its strong portfolio of advanced technologies.
The company’s customer base includes many semiconductor bigwigs, such as NVIDIA (NVDA - Free Report) , Advanced Micro Devices (AMD - Free Report) , Amazon Web Services, Broadcom, Infineon Technologies, Intel (INTC - Free Report) , MediaTek, NXP Semiconductors, Qualcomm and Sony.
The fact that TSM is one of the largest manufacturers of NVIDIA’s chipsets is noteworthy.
Growing relationships with these behemoths are expected to continue driving Taiwan Semiconductor’s top-line growth.
A Look at Impressive Guidance & Upward Estimate Revision
For third-quarter 2024, Taiwan Semiconductor expects the solid adoption of AI and smartphones to boost the demand for its leading-edge process technologies. It projects revenues between $22.4 billion and $23.2 billion. The Zacks Consensus Estimate for third-quarter revenues is pegged at $22.72 billion, indicating year-over-year growth of 31.5%.
The consensus mark for third-quarter 2024 earnings is pegged at $1.72 per share, suggesting year-over-year growth of 33.4%. The estimate has been revised upward by 10.3% in the past 60 days.
The company expects above 20% growth in 2024 revenues on rising demand for high-end chips used in AI applications.
The Zacks Consensus Estimate for 2024 revenues is pegged at $85.62 billion, indicating year-over-year growth of 23.6%.
The consensus mark for 2024 earnings is pegged at $6.45 per share, indicating year-over-year growth of 24.5%. The estimate has been revised upward by a penny in the past 30 days.
Image Source: Zacks Investment Research
Attractive Valuation
TSM’s attractive valuation should beckon investors seeking value. The stock is currently trading at a discount with a forward 12-month P/E multiple of 21.82X, lower than the sector’s average of 27.12X. This reflects a good entry point for the investors.
Image Source: Zacks Investment Research
Conclusion
Taiwan Semiconductor’s leading position in the semiconductor manufacturing space, robust portfolio of technologies, solid customer momentum and expanding chip manufacturing fabs present an attractive investment opportunity for growth-seeking investors.
Its solid financial health, attractive valuation and upward estimate revisions paint a promising picture. We recommend investors to buy the TSM stock as it has upbeat growth prospects in this booming AI era.
Taiwan Semiconductor currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.