8. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Harvard Management Company’s Stake: $84.88 million
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), based in Taiwan, supplies integrated circuits and other semiconductor devices to leading tech companies like Apple and NVIDIA.
For the third quarter, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) reported net revenue of $23.5 billion, marking a 36% year-over-year increase. The company’s gross margin also rose to 57.8%, up from 54.3% in the same period last year. Looking ahead, the company expects fourth-quarter revenue to range between $26.1 billion and $26.9 billion. This guidance represents a 13% sequential increase and a 35% year-over-year increase at the midpoint. Moreover, during the Q3 earnings call, TSMC Chairman and CEO C.C. Wei emphasized that AI demand is “real” and highlighted TSMC’s unmatched industry growth.
“We have talked to our customers all the time, including our hyperscaler customers who are building their own chips. And almost every AI innovator is working with TSMC.”
On October 19, Needham raised its price target for Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) shares from $210 to $225, anticipating further upside in gross margins. Last year, Needham had forecast TSMC’s 2025 revenue at $110 billion, well above the then-consensus estimate of $96 billion. With TSMC consistently delivering “beat-and-raise” quarters, consensus estimates have since aligned with Needham’s projections, reflecting strong market confidence in TSMC’s growth outlook. For 2024, TSMC’s revenue is expected to reach approximately $90 billion, positioning the company for an estimated 23% growth in 2025.
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.”
