5. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Analyst Upside as of November 18, 2024: 29%
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the stocks that could 10x over the next three years. The semiconductor company makes chips for technology giants like NVIDIA and AMD.
In the third quarter of 2024, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) logged revenue worth $23.7 billion (NT$759.69 billion) and net income worth $10.13 billion (NT$325.26 billion), up by 39% and 54.2% year-over-year, respectively. TSM attributes its revenue growth to the increasing demand for artificial intelligence and expects its four-year revenue to increase by nearly 30%.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is expanding its presence across the world. The company recently formed a joint venture with major partners in Germany and expanded its partnership with Amkor to facilitate advanced packaging in Arizona, fueling the semiconductor ecosystem in the region.
In addition to that, the company expects to spend $32 billion to $40 billion in capital expenditures in 2024, allocated to advanced process technologies, specialty technologies, and advanced packaging and testing. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) expects revenue from AI chips to increase at a compound annual growth rate (CAGR) of 50% by 2027.
Baron Global Advantage Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q3 2024 investor letter:
“We established a small position in Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM). Morris Chang founded TSMC in 1987, as the world’s first dedicated semiconductor foundry. Until then, semiconductor chips were always designed and manufactured by the same company. TSMC introduced a groundbreaking new business model, in which it acted purely as a contract manufacturer, which proved to be highly successful. TSMC maintained a focus on improving its manufacturing process technology and enabled the emergence of innovative fabless design companies, including NVIDIA, Apple, and Qualcomm, who became TSMC’s key customers. Today, TSMC has a more than 60% share of the total semiconductor foundry market and over 90% share in leading-edge manufacturing. TSMC enjoys high barriers to entry given the ever-increasing cost and technological complexity of semiconductor manufacturing while benefiting from economies of scope as once leading-edge manufacturing becomes lagging edge on fully depreciated equipment. TSMC also benefits from scale– higher profits lead to higher R&D and capex investments, allowing for further technological differentiation, resulting in more profits. We believe TSMC will sustain strong double-digit earnings growth for years to come, driven by continued market share gains, strong pricing power, and structural growth in AI demand. According to C.C. Wei, TSMC’s CEO, “almost all the AI innovators are working with TSMC to address the insatiable AI-related demand.”6 Management forecasts that revenue from server AI chips, such as GPUs and other AI accelerators, will grow at a 50% CAGR from 2022 to 2028 and account for more than 20% of TSMC’s revenue by 2028. We except further long-term upside from the eventual proliferation of edge AI devices, including AI smartphones and AI PCs, which will require significantly more computing power and drive even stronger demand for TSMC’s leading-edge technology.”
