Investing in Taiwan Semiconductor: A Growing Opportunity

Taiwan Semiconductor Manufacturing Company (TSMC) has recently joined the elite trillion-dollar club after witnessing an impressive stock price increase of 90% in 2024. This surge has catapulted its market capitalization from approximately $500 billion to over $1 trillion, indicating a sharp rise in its valuation within just a year.

As one of only ten publicly-traded companies globally to reach this milestone, TSMC, often referred to as TSM, presents a compelling investment case. Despite its significant stock price growth, analysts suggest that TSMC could still be an attractive buy for investors looking for growth opportunities.

Understanding TSMC's Financial Performance

To better comprehend TSMC’s position, it's essential to look at its recent financial performance:

Metric	Q1 2024	Q2 2024	Q3 2024	Q4 2024
Revenue growth (YOY)	16.5%	40.1%	39.0%	38.8%
Earnings per share growth (YOY)	8.9%	36.3%	54.2%	57.0%

As shown in the table, TSMC has exhibited significant acceleration in both revenue and earnings growth over the past year. Notably, the company’s gross margin has been improving, which has contributed to strong earnings growth as well. With this robust performance, it’s no surprise that TSMC’s shares have reached new heights.

Furthermore, the outlook for TSMC appears bright due to ongoing industry trends. Major technology companies, such as Microsoft, Alphabet, and Amazon, are planned to invest heavily in AI infrastructure over the coming years. This trend will drive demand for TSMC's advanced chip manufacturing capabilities, solidifying its position in the industry.

Evaluating the Investment Potential

Some investors may feel that they have missed their chance to invest in TSMC after such a rapid increase in stock price. Currently trading at around $223, TSMC is near an all-time high, possibly leading to concerns about overvaluation.

However, despite this high stock price, TSMC's forward price-to-earnings (P/E) ratio is only 25. This is notably comparable to the average P/E of the S&P 500, which stands at 24. This suggests that TSMC's stock is not excessively priced, considering its strong earnings and revenue growth.

The impressive growth in earnings per share is outpacing revenue growth, reinforcing that TSMC may still be undervalued from an earnings perspective. This aligns with the notion that the company is experiencing a valuation normalization after being undervalued relative to other chip manufacturers for an extended period.

The ongoing demand for AI technologies is expected to strengthen TSMC’s market position, leading to continued revenue and earnings growth in the years ahead. Given these factors, TSMC represents a solid investment opportunity for those looking to capitalize on future growth within the semiconductor sector.

TSMC, Investment, Growth