The Rising Star: Taiwan Semiconductor Positioned to Soar
Artificial intelligence (AI) continues its relentless march through various sectors, propelling the semiconductor industry to ever greater heights. Meta Platforms (META) recently unveiled its cutting-edge AI accelerator chip, Meta Training and Inference Accelerator (MTIA), poised to enhance efficiency and reduce dependence on Nvidia (NVDA) for AI chips.
Dominance in Innovation: Meta Partners with Taiwan Semiconductor
Taiwan Semiconductor ADR (TSM), the world’s foremost semiconductor foundry, has been identified as the manufacturer of Meta’s next-gen chips using its 5nm process. These chips, offering triple the performance of their predecessors, are tailored to support AI applications across Meta’s suite of apps, including generative AI workloads.
About Taiwan Semiconductor’s Triumph
Based in Hsinchu City, Taiwan Semiconductor ADR (TSM) has solidified its position as a key player in the semiconductor realm. With a hefty market capitalization of $721.1 billion, the company excels in integrated circuit production for diverse global industries, spanning high-performance computing, smartphones, IoT, automotive, and digital consumer electronics.
Commanding a massive 61% share of the foundry market, Taiwan Semiconductor stands out as a manufacturing powerhouse, catering to AI chip giants like Nvidia and AMD. Its stock has surged 27% year-to-date, outshining the S&P 500 Index’s modest 5.6% returns.
With a longstanding tradition of dividend payouts lasting 19 years, Taiwan Semiconductor currently offers a yield of over 1%. Their policy of returning 70% of free cash flow annually as dividends underscores a commitment to shareholder value.
Trading at a forward earnings multiple of 23.18x, Taiwan Semiconductor represents a more cost-effective investment compared to its rival, Intel (INTC), trading at 58.7x.
Taiwan Semiconductor Smashes Q1 Expectations
In its latest earnings report, Taiwan Semiconductor posted robust Q1 earnings of $1.38 per share, surpassing analyst estimates. The company recorded a 16.5% year-over-year revenue surge to $18.3 billion, driven by soaring demand for AI chips.
Notably, 3-nanometer shipments accounted for 9% of total wafer revenue in Q1, with 5-nm and 7-nm making up 37% and 19%, respectively. Advanced technologies, including 7-nm and higher, constituted 65% of total wafer revenue.
Providing a forward-looking outlook, management anticipates Q2 revenue ranging from $19.6 billion to $20.4 billion, exceeding consensus expectations. However, TSM shares saw a decline as management cited potential offset from seasonal smartphone demand.
Analysts project fiscal 2024 earnings for Taiwan Semiconductor to hit $6.15 per share, marking an 18.7% year-over-year increase. Further growth is forecasted for fiscal 2025, with earnings expected to climb by an additional 23.9% to $7.62 per share.
Analyst Sentiment and Future Projections
Analysts exhibit a collective “Strong Buy” sentiment towards Taiwan Semiconductor stock. Of the nine analysts covering TSM, seven advocate a “Strong Buy,” while one suggests a “Moderate Buy,” and another proposes a “Hold.”
The average analyst price target of $149.67 indicates a potential 13.2% upside from current levels. A bullish outlook from Susquehanna’s Mehdi Hosseini, with a lofty price target of $180, suggests a substantial 36.2% long-term rally for the stock.