Taiwan Semiconductor: A Trillion-Dollar Opportunity

Taiwan Semiconductor Manufacturing (TSMC) has recently joined the ranks of companies with a market capitalization exceeding $1 trillion, following an impressive 90% rise in its stock value during 2024.

Currently, there are ten publicly traded companies globally that have achieved this milestone. TSMC stands out as a newer member of this exclusive trillion-dollar club. In just a single year, this company's stock price surged, nearly doubling its market capitalization from around $500 billion to over $1 trillion.

What may surprise investors is that despite this remarkable growth, TSMC's stock still presents a compelling investment opportunity. Here, we will explore reasons why TSMC could be an attractive option for growth-focused investors.

Analyzing TSMC’s Financial Performance

To understand TSMC's promising position, it's essential to review its recent financial performance. The following table highlights TSMC's annual growth metrics for revenue and profit over recent quarters:

Metric	Q1 2024	Q2 2024	Q3 2024	Q4 2024
Revenue Growth (YOY)	16.5%	40.1%	39.0%	38.8%
Earnings Per Share Growth (YOY)	8.9%	36.3%	54.2%	57.0%

Source: TSMC. YOY = year over year.

Over the past year, TSMC has shown a significant acceleration in its revenue growth. Additionally, the company's gross margin is improving, indicating strong earnings growth as well. This financial robustness is a key reason behind the surge in TSMC's stock price.

Moreover, emerging industry trends reinforce TSMC's strong growth potential. Major tech companies like Microsoft, Amazon, Alphabet, and Oracle are planning substantial investments in AI infrastructure in the coming years. This trend suggests a growing demand for TSMC's advanced chip manufacturing capabilities.

With the data above indicating solid revenue and earnings growth, it appears TSMC is in an excellent position to capture a considerable share of the burgeoning AI market.

Valuation and Investment Potential of TSMC

Some investors might think that they have missed their chance to invest in TSMC, given its impressive stock performance. Traditionally, stock prices do not continue to rise at such a rapid pace forever, and a trillion-dollar valuation might lead some to believe that the potential for further growth is limited.

As it stands, TSMC's stock trades at approximately $223, close to an all-time high. This price reflects the momentum that has been driving TSMC's stock upward, potentially suggesting the stock is overvalued.

However, despite its high price, TSMC currently holds a forward price-to-earnings (P/E) ratio of only 25, which is comparable to the average P/E ratio of the S&P 500 at 24. TSMC is a rare case of a major corporation experiencing fast growth in both its top and bottom lines. Importantly, its earnings per share (EPS) growth is outpacing its revenue growth, indicating robust profitability.

The current increase in TSMC's valuation seems justified, considering the normalization process after a period of being undervalued relative to similar firms in the semiconductor industry.

Given the strong underlying trends in the AI sector, it is likely that TSMC will continue to strengthen its position in the semiconductor market. For these reasons, TSMC represents an extraordinary investment opportunity for those looking for growth potential in their portfolios.

Taiwan, Semiconductor, AI