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The Best Semiconductor Stock to Own This Decade

Taiwan Semiconductor’s (TSM) commitment to delivering notable growth over the past years and recent strategic advances makes it a pioneering force in the semiconductor industry. Given its robust fundamentals, investors could consider owning this chip stock for a decade. Continue reading...

The burgeoning demand for semiconductors, propelled by the rapid adoption of cutting-edge technologies and extensive chip usage across various sectors, is noteworthy. Therefore, Taiwan Semiconductor Manufacturing Company Limited (TSM) offers a compelling investment prospect, fortified by its robust market positioning and solid growth prospects.

Headquartered in Hsinchu City, Taiwan, TSM is widely recognized as a pioneering force in the realm of semiconductor foundries and has established itself as a preeminent industry player through its ground-breaking efforts in building the world’s largest semiconductor design ecosystem, named the Open Innovation Platform®.

The company’s revenue has experienced a remarkable surge over the past three years, growing at a CAGR of 28.4%. Also, the company’s EBITDA and net income have achieved notable growth, increasing at CAGRs of 33.2% and 42.1% over the same period, respectively.

Furthermore, TSM has remained steadfast in its commitment to return capital to its shareholders through reliable dividends since 2004. The company pays a $1.82 per share dividend annually, translating to a 2.09% yield on the current price level. Moreover, its dividend payouts have grown at a 9.6% CAGR over the past five years.

Over the past three months, the stock has gained 9.9% to close the last trading session at $87.07. TSM is trading higher than its 50-day and 200-day moving averages of $86.24 and $81.87, respectively, indicating an uptrend.

Here’s what could influence TSM’s performance in the upcoming months:

Positive Latest Developments

On February 14, 2023, TSM's board of directors sanctioned a capital injection plan of $3.50 billion for TSM Arizona. In December, the company augmented its initial financial commitment to the Arizona chip manufacturing plant threefold, elevating it to $40 billion.

This reflects one of the most significant overseas investments in American history. The company stands to gain considerably by broadening its business endeavors.

Moreover, on December 29, 2022, the company announced that its 3nm technology had achieved volume production with good yields, which was duly celebrated with the topping ceremony of its Fab 18 Phase 8 facility. The company believes 3nm technology could generate end products worth a staggering $1.50 trillion within five years of achieving volume production.

Solid Financials

TSM’s net revenue for the fiscal fourth quarter that ended December 31, 2022, increased 42.8% year-over-year to $19.93 billion, while its gross profit grew 68.7% year-over-year to $12.40 billion. Its income from operations rose 77.8% from the prior year’s quarter to $10.36 billion.

Furthermore, the company’s net income stood at $9.43 billion, a 77.8% growth from the previous year’s period, and its EPS grew 78% year-over-year to $0.36. As of December 31, 2022, TSM’s total assets stood at $161.65 billion, up 33.3% year-over-year.

Favorable Analyst Estimates

Analysts expect TSM’s revenue to increase 19.2% year-over-year to $90.62 billion for the fiscal year ending December 2024. The company’s EPS for the same year is expected to rise 23.6% from the previous year to $7.04. Moreover, TSM surpassed its consensus EPS estimates in all four trailing quarters, which is impressive.

High Profitability

TSM’s trailing 12-month gross profit margin of 59.56% is 21.1% higher than the industry average of 49.19%. Likewise, the stock’s trailing-12-month EBITDA margin and net income margin of 68.53% and 44.90% compare to the industry averages of 11.33% and 2.89%, respectively.

Moreover, TSM’s trailing-12-month levered FCF margin of 12.50% is 80% higher than the 6.95% industry average. Also, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 39.76%, 20.69%, and 20.47% compare to the respective industry averages of 4.97%, 3.21%, and 1.52%.

POWR Ratings Show Promise

TSM’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TSM has an A grade for Quality, consistent with its higher-than-industry profitability. In addition, it has a B grade for Sentiment, in sync with its optimistic analyst estimates.

TSM is ranked #20 out of 92 stocks in the Semiconductor & Wireless Chip industry. Click here to access TSM’s Momentum, Growth, Value, and Stability ratings.

View all the top stocks in the Semiconductor & Wireless Chip industry here.

Bottom Line

TSM’s capital injection plan and the successful volume production of its 3nm technology reflect its promising growth prospects. Given its solid financial performance, high profitability, and attractive dividends, this popular chip stock could be a wise long-term investment.

How Does Taiwan Semiconductor Manufacturing Company Limited (TSM) Stack up Against Its Peers?

TSM has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Semiconductor & Wireless Chip industry with an A (Strong Buy) rating: Renesas Electronics Corporation (RNECF), STMicroelectronics N.V. (STM), and SUMCO Corporation (SUOPY).

What To Do Next?

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3 Stocks To DOUBLE This Year

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3 Stocks To DOUBLE This Year

TSM shares were trading at $88.91 per share on Wednesday morning, up $1.84 (+2.11%). Year-to-date, TSM has gained 19.36%, versus a 3.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.


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