Taiwan Semiconductor: AI Exposure With Less Bubble Hype?
Jul. 19, 2023 9:34 AM ET Taiwan Semiconductor Manufacturing Company Limited (TSM)
Summary
- Taiwan Semiconductor Manufacturing Company has seen a 38% YTD increase, largely due to excitement over its production of Nvidia’s GPU chips.
- I wouldn’t necessarily buy TSM stock before earnings, but the relative value against American tech peers is instructive about how risk and reward are perceived by investors.
- TSMC makes more income, has a lower market cap, and has a more stable earnings trend than Apple or Nvidia.
- The potential for China to invade Taiwan is a risk factor for TSMC, but this would also severely impact American tech companies that rely on TSMC’s supply chain.
Introduction
Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s leading pure-play foundry, which means that it manufactures chips for other companies. TSMC’s customers include some of the world’s largest technology companies, such as Apple, Qualcomm, and Nvidia.
In recent years, TSMC has been benefiting from the growth of artificial intelligence (AI). AI is a rapidly growing field, and it is estimated that the global AI market will reach $190 billion by 2025. As AI becomes more widespread, TSMC will be able to manufacture more chips that are used in AI applications.
The Potential for TSMC to Benefit from AI
There are a number of reasons why TSMC is well-positioned to benefit from the growth of AI. First, TSMC has a strong track record of innovation. The company has been at the forefront of the semiconductor industry for many years, and it is constantly investing in new technologies.
Second, TSMC has a global supply chain. This means that the company is able to manufacture chips for customers all over the world. This is important for AI, as AI applications are used in a wide variety of industries.
Third, TSMC has a strong customer base. The company’s customers include some of the world’s largest technology companies, which means that TSMC has a guaranteed demand for its chips.
The Risks Associated with Investing in TSMC
While there are a number of reasons to be bullish on TSMC, there are also some risks associated with investing in the company. One risk is that the AI bubble could burst. If this happens, there could be a decline in demand for AI chips, which would hurt TSMC’s business.
Another risk is that TSMC could face increased competition from other foundries. There are a number of other companies that are trying to compete with TSMC in the foundry market. If these companies are successful, they could eat into TSMC’s market share.
Conclusion
Overall, TSMC is a good investment for investors who are looking for exposure to the growth of AI. However, investors should be aware of the risks associated with investing in TSMC.
Additional Information
In addition to the risks mentioned above, there are a few other things to keep in mind when investing in TSMC. First, the company’s stock is relatively expensive. This means that investors should be prepared to pay a premium for TSMC shares.
Second, TSMC’s business is cyclical. This means that the company’s profits can fluctuate from year to year. Investors should be prepared for this volatility.
Overall, TSMC is a good investment for investors who are looking for exposure to the growth of AI. However, investors should be aware of the risks associated with investing in TSMC and should do their own due diligence before investing.
