Despite talk of increasing competition, TSMC’s technology remains some way ahead of rivals and is offering its customers products that should have a long shelf life.
After a difficult 2023 when the semiconductor industry suffered from excess stocks and lower sales, 2024 is looking good. Recovering demand is expected to be driven by high performance computing and the continued growth of generative AI applications.
Recent first quarter sales were up by more than 16pc and were better than investors expected. Not even the recent earthquake in Taiwan has put the company off course, as it has retained its guidance for revenue growth of more than 20pc this year.
However, it is the potential political earthquake of a Chinese invasion of Taiwan which continues to unnerve some investors and keeps them away from TSMC shares. This threat is nothing new and while worries may be justified to some extent, a Chinese invasion of Taiwan would blow a hole in most global share prices, too.
TSMC is diversifying its chip production footprint and is developing new fabs in Japan, the US and Germany. These will not be as cheap to build as the ones in Taiwan, but the company believes it can maintain its high returns on investment when production volumes scale up.
It is also true that even with the growth of AI, TSMC is still going to be a cyclical business and will experience ups and downs in demand going forward.
That said, with its shares trading on 19.4 times next year’s forecast earnings per share (EPS) and medium term profits growth of around 20pc, a lot of risks are more than priced in. The shares look far too cheap for a dominant global leader in a growing market.
Questor says : Buy
Ticker: NYSE:TSM
Share price at close: $138.30
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