2024-05-17 11:38:22 ET
Summary
- Taiwan Semiconductor Manufacturing Company (TSM) is a strong buy for long-term investors due to its strong technological capabilities and central role in the semiconductor supply chain.
- TSMC dominates the industry with its advanced chips and strategic investments in international markets, mitigating risks associated with Taiwan-China tensions.
- Despite recent earnings report causing a drop in share price, TSMC's leading position in the semiconductor industry and growth prospects make it a cheap and strong buy.
Investment Thesis
I believe that Taiwan Semiconductor Manufacturing Company’s ( TSM ) strong technological capabilities, especially with expansions outside Taiwan, and central role in the semiconductor supply chain present a case for a strong buy recommendation for long-term investors. The potential risks from geopolitical tensions between Taiwan and China are critical for TSM’s future but I think are being over-weighted by analysts. While any possibility of a Chinese invasion poses a threat to TSM and the global semiconductor supply chain, as previously emphasized by Mark Liu, TSM's Chair, who warned that any conflict would render their advanced facilities inoperable due to their reliance on global supply chains, I really think this is a lower odds event and is being over priced into the stock. These risks, in my opinion, are counterbalanced by the company’s positioning and growth prospects in the global semiconductor market.
TSM has become the world's largest contract chipmaker through their most advanced chips, which include 2nm and 3nm nodes. They dominate the industry by securing a 54% market share and their capability to supply chips to Apple, Qualcomm, and Nvidia? ( NVDA ). Despite the current geopolitical issues, TSM continues to exhibit strategic investments in international markets as part of a "Taiwan plus one" strategy to mitigate the risks associated with the Taiwan-China tensions. They have expanded outside Taiwan by setting up factories in the United States, Japan, and Germany to address increasing market demand for AI-driven technologies. In fact, this demand was so high that TSM’s order book is sold out with revenues up 59.6% in the month of April....
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TSMC: Derisking China Invasion Threats