5. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)
Number of Hedge Fund Investors: 176
UBS recently published a list of stocks it believes will be industry leaders by 2030. UBS believes the next decade will favor companies that use technology to disrupt industries.
“We see these as leading disruptors in industries undergoing technological change, which should have a lasting impact,” said UBS analyst Hartmut Issel in a note.
The firm identified 29 companies it expects to deliver stronger earnings growth than the broader market (S&P 500, NASDAQ), supported by “positive, long-term trends,” according to Issel.
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) was among these stocks in the Enabling Tech category.
Revenue for enabling tech could reach $1.2 trillion by 2025, growing at around 15% annually from FY20 to FY25, according to UBS. The firm expects faster adoption of AI, cybersecurity, and other key technologies by businesses and governments, driven by increasing security breaches and the need to reduce costs through automation.
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is trending after impressive latest quarterly results. Here was the highlight of these results:
“The demand is real. And I believe it’s just the beginning of this demand. All right. So one of my key customers said, the demand right now is insane. That’s it’s just the beginning, it’s a form of scientific to be engineering.”
That was Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)’s CEO comment during Q3 earnings call.
Do the numbers back these “insane” demand claims? You bet.
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) reported consolidated sales of NTM 760 billion ($23.5 billion) for the quarter, surpassing the $23.3 billion expected by analysts. Sales grew 36% year-over-year, well above Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)’s target growth rate of around 20% CAGR set in 2021.
Management attributed the growth to strong demand for smartphones and AI-related products, particularly their advanced 3-nanometer and 5-nanometer technologies. The AI-related demand, which Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) refers to as the High Performance Computing (HPC) segment, saw double-digit growth, along with the Smartphone segment. Together, these two segments make up 85% of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)’s revenue, with HPC now representing 51% of total revenue, up from 42% last year. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), which dominates the advanced chip fabrication market with a 90% share, showed its strength with these strong Q3 results.
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) raised its capital expenditure outlook for FY2024 to just over $30 billion, in line with FY2023. Around 70% to 80% of this budget will go toward advanced process technologies. Management highlighted that higher capital spending is linked to greater growth opportunities in the future. As a result, Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is expected to focus on 2nm and A16 technology ramps next year to expand capacity for increasing demand in lower nanometer chips.
Despite the stock’s recent rally, it remains reasonably priced. It’s trading at 28x forward non-GAAP P/E and 9.3x forward EV/sales. While these figures are above the 5-year averages, they’re justified by Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)’s strong growth, with over 30% year-over-year expansion and significant margin improvements. This performance is well above the high-teens CAGR target set for 2021 to 2026. Moreover, its forward P/E remains below the Nasdaq 100’s 30.4x.
Diamond Hill Long-Short Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“On an individual holdings’ basis, top contributors to return in Q2 included our long positions in Alphabet, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Microsoft. Semiconductor manufacturer Taiwan Semiconductor’s (TSMC) fundamentals remain solid as demand for its chips continues growing — particularly as the machine learning and cloud computing trends gain more traction.”
