We came across a bullish thesis on Taiwan Semiconductor Manufacturing Company Limited (TSM) on Capitalist Letters’ Substack by Oguz Erkan. In this article, we will summarize the bulls’ thesis on TSM. Taiwan Semiconductor Manufacturing Company Limited (TSM)’s share was trading at $211.50 as of Jan 17th. TSM’s trailing and forward P/E were 34.41 and 24.04 respectively according to Yahoo Finance.
A worker operating a robotic arm in a semiconductor manufacturing facility.
Taiwan Semiconductor Manufacturing Company (TSMC) is a cornerstone of the semiconductor industry and uniquely positioned to benefit from the surging global demand for advanced chips driven by AI and technological advancements. As the leading manufacturer for companies like Nvidia, AMD, and Apple, TSMC plays a critical role in the semiconductor ecosystem. Nvidia’s rapid ascent in the data center chip market exemplifies the volatility among chip designers, but TSMC’s consistent role as the backbone of advanced chip production ensures its growth. With data centers requiring millions of GPUs and periodic renewals every 4–5 years, the demand for TSMC’s advanced manufacturing capabilities is set to soar, solidifying its position as a key enabler of the AI revolution.
TSMC’s capital-intensive business model creates insurmountable barriers to entry, reinforcing its near-monopoly status. Its unmatched efficiency and manufacturing expertise result in chip yields of 90% for its 3nm process and 60% for its 2nm process, outclassing competitors like Samsung. This efficiency allows TSMC to offer lower costs and higher quality, making it the preferred partner for top-tier chip designers. Its advancements in 1nm technology further underscore its leadership in innovation, while the prohibitive costs and risks of switching foundries secure its dominance. As AI’s transformative potential accelerates, TSMC’s scale, agility, and vital role in the global semiconductor supply chain cement its status as a linchpin in the compute power ecosystem.
TSMC’s history reflects strategic industrialization. Founded under Morris Chang’s visionary leadership, the company revolutionized the industry by prioritizing manufacturing over design, establishing itself as an indispensable partner for chip designers. Despite its dominance, TSMC trades at an attractive valuation of 20 times forward earnings, presenting a compelling opportunity for long-term investors. Its strong balance sheet, consistent performance, and ability to weather industry downturns further enhance its appeal, making it a resilient choice amid market volatility.
While geopolitical risks, such as a potential Chinese invasion, pose concerns, TSMC has taken proactive measures to mitigate these threats. The company has diversified its operations by establishing advanced fabs in the U.S., Europe, and Japan, ensuring supply continuity and reinforcing its leadership. With AI tools evolving rapidly and demand for high-performance chips accelerating, TSMC is poised to capture a substantial share of the AI-driven semiconductor boom. Projected to grow at a 28% CAGR, the AI chip market is expected to reach $750 billion by 2033, complementing the overall semiconductor market forecast of $1.1 trillion, providing TSMC with unparalleled growth potential.
Even under conservative assumptions, TSMC’s revenues are estimated to grow 20% annually, reaching $220 billion by 2030. Maintaining a stable 40% profit margin, the company could achieve $88 billion in net income. Applying a modest 25x earnings multiple, this translates to a potential $2.2 trillion valuation by 2030, offering investors an annualized return of 17%. Recent developments, such as easing geopolitical tensions and TSMC’s overseas expansions, have alleviated key concerns, while its valuation remains below fair value. With unmatched competitive advantages, technological superiority, and pricing power, TSMC represents a top-tier investment opportunity in the semiconductor sector, offering significant upside for investors seeking to capitalize on the AI revolution.
Taiwan Semiconductor Manufacturing Company Limited (TSM) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 158 hedge fund portfolios held TSM at the end of the third quarter which was 156 in the previous quarter. While we acknowledge the risk and potential of TSM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.