TSM
Comprehensive Investment Analysis: Taiwan Semiconductor Manufacturing Company (TSMC)
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Comprehensive Investment Analysis: Taiwan Semiconductor Manufacturing Company (TSMC)
1. Company Overview
TSMC is the world’s largest dedicated semiconductor foundry, commanding over 50% of the global market. The company’s leadership in advanced process technologies, particularly 5nm and 3nm nodes, underpins its dominance in the semiconductor industry. TSMC’s clientele includes tech giants such as Apple, Nvidia, and AMD, with significant revenue contributions from AI, high-performance computing (HPC), and automotive markets.
2. Financial Performance: Q1-Q3 2024
Revenue and Profitability
Revenue Growth: TSMC reported NT$2,025.85 billion in revenue for the first three quarters of 2024, reflecting a 31.9% year-over-year increase. This growth was primarily driven by surging demand for AI-related semiconductors and advanced process technologies.
Net Income: Q3 2024 net income was NT$325.3 billion, a 54% increase compared to Q3 2023. Improved operational efficiency and higher utilization rates supported this profitability.
Gross Margins: Q3 2024 gross margin stood at 57.8%, up 4.6 percentage points from Q2 2024. This improvement is attributed to cost optimizations and pricing strength in advanced nodes.
Liquidity and Capital Investments
Cash Reserves: As of Q3 2024, TSMC held cash and marketable securities of TWD 2.2 trillion (~USD 69 billion), highlighting robust liquidity.
Capital Expenditure: TSMC plans to invest $32-36 billion in 2024, focusing on 2nm technology and expanding global capacity to meet growing demand.
3. Valuation Analysis
Price-to-Earnings (P/E) Ratio
Current P/E: TSMC’s P/E ratio is approximately 22.5x, below the industry average (e.g., Nvidia’s ~40x). This valuation reflects market concerns over geopolitical risks but suggests room for upward re-rating.
Price/Earnings-to-Growth (PEG) Ratio
Current PEG: At 0.9x (P/E of 22.5x and projected 25% earnings growth), TSMC offers significant growth at an attractive price. A PEG below 1 indicates undervaluation relative to growth prospects.
Comparison to Peers
Nvidia: P/E ~40x, PEG ~1.5x
Intel: P/E ~15x, PEG ~2.2x
TSMC’s valuation is competitive, balancing profitability and growth potential.
4. Growth Drivers
AI and High-Performance Computing (HPC)
AI-related chips accounted for ~15% of TSMC’s 2024 revenue, expected to rise to 25% by 2026. This segment’s rapid expansion positions TSMC at the forefront of the AI revolution.
Advanced Process Technologies
TSMC’s leadership in 3nm and the upcoming 2nm nodes ensures continued demand from premium clients like Apple and Nvidia, reinforcing its competitive edge.
Market Diversification
Automotive and IoT markets are emerging as significant growth areas, with increasing semiconductor content in electric vehicles (EVs) and connected devices.
5. Risk Assessment
Geopolitical Risks
TSMC’s location in Taiwan poses exposure to US-China tensions. While the company is diversifying its geographic footprint (e.g., building fabs in Arizona and Japan), this remains a critical risk factor.
Macroeconomic Cyclicality
The semiconductor industry’s cyclical nature could lead to demand fluctuations during economic downturns.
Competitive Pressures
Rivals like Intel and Samsung are investing heavily in advanced nodes, which could pressure TSMC’s market share and pricing.
6. Historical Stock Price Trends
Performance (2021-2024)
2021 High: ~$145 (peak of semiconductor boom)
2022 Low: ~$68 (global market correction)
2024 Range: $80-$135 (recovering due to AI-driven demand)
Validation Tools
TSMC’s price trends align with broader semiconductor indices (e.g., SOXX) and correlate with performance from major clients like Nvidia and AMD.
7. Expert Insights and Cross-Referencing
Analyst Reports
Goldman Sachs: “Buy” rating with projected revenue CAGR of 15-20% over the next five years.
Morgan Stanley: Highlights robust margins and pricing power from 3nm dominance.
Independent Platforms
Morningstar and Zacks validate TSMC’s strong fundamentals and attractive valuation.
Market News
Reports from Financial Times and Wall Street Journal underscore the critical role of AI in driving future demand.
8. Investment Strategy
Thesis
TSMC represents a compelling investment opportunity, combining technological leadership, strong financial performance, and exposure to high-growth markets like AI and automotive semiconductors. Despite geopolitical risks, the company’s geographic diversification and market positioning mitigate potential downsides.
Valuation
Target Price: Based on a forward P/E of 25x and 2024 projected EPS of $6.50.
Conclusion
TSMC’s leadership in the semiconductor industry, bolstered by its advanced technologies and growing AI demand, makes it a cornerstone investment for long-term portfolios. While risks exist, the company’s strong financials, attractive valuation metrics, and strategic initiatives position it as a robust player in a rapidly evolving market.