Taiwan Semiconductor Manufacturing Company (TSM) stock has been stellar this year, driven by robust demand for its advanced semiconductor technologies. Semiconductor stocks like TSM, killed it last year due to burgeoning demand from AI, high-performance computing (HPC), and 5G sectors. However, following last year’s impressive gains, semiconductor stocks have cooled off, making it a prime opportunity to scoop them during the current pullback.
Stock Price Movements And Upside
TSM stock is changing hands for $160.49, sitting upwards of 17% behind its 52-week high of $193.47. Nonetheless, the significant jump from a low of $84.02 underscores a massive upward trend. Year-to-date (YTD), the stock is up more than 54%, dwarfing the S&P 500’s 16% gain over the same period. However, the gains have slowed considerably in recent months amidst a broader market pullback in AI-powered stocks.
A close-up of a complex network of integrated circuits used in logic semiconductors.
Many consider it a welcome breather, with its stock now trading over 26 times GAAP earnings. However, TSM still has a tremendous growth trajectory ahead as the AI sector transitions from its genesis stage.
On the financial front, the firm continues to impress. Over the past four quarters, it has comfortably blown past analyst estimates across both lines, driving significant year-over-year gains. In its most recent quarter, sales and earnings both picked up the pace in incredible fashion. YOY growth in sales came in at 34% to $20.7 billion, while earnings shot up 31% to $1.47 per share, reversing the drop witnessed in the prior-year period.
As we look ahead, analysts from FactSet project a 23% increase in profits this year, with earnings of $6.46 per share. In 2025, they anticipate a further 27% rise in its bottom-line, with earnings reaching $8.23 per share. That puts its TSM stock at around 19.20 time’s forward earnings, substantially lower than its current valuation.
Risks and Takeaway
Despite its formidable bull case, risks remain. Perhaps the biggest element to consider is the potential for major slowdowns in key markets such as smartphones and PCs, crippling demand for TSMC’s products. Additionally, geopolitical tensions, though in check currently, could pose a threat to TSMC’s operations. Nonetheless, the competition from players like Samsung and emerging foundries could erode TSMC’s market share over time.
Overall, TSMC’s leadership in developing cutting-edge semiconductor technology remains unchallenged. Robust customer relationships, a relatively attractive valuation, and alignment with global economic interests should continue driving more upside for TSM stock investors. TSM is ranked 9th on the latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 156 hedge fund portfolios held TSM at the end of the second quarter which was 135 in the previous quarter. While we acknowledge the potential of TSM as an AI 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 as promising as 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 is originally published at Insider Monkey.