Taiwan Semiconductor Manufacturing Company Ltd. (TSMC) is experiencing a rally fueled by optimism around artificial intelligence (AI), despite concerns over its relationship with China following Taiwan’s presidential election. The company’s shares have risen 12% from a September low, adding $59 billion to its market value. Investors are betting on a recovery in the global chip industry after more than a year of inventory correction.
Although TSMC’s shares are still 15% below their record level set two years ago, analysts expect a catch-up, with the average price target indicating a 20% gain over the next year. The company’s dominance in AI chip production is seen as a driving factor for its potential breakout. Analysts believe TSMC’s low valuations and better-than-expected sales, along with likely price hikes, could further boost its stock price.
As the world’s largest foundry and the manufacturer of 5-nanometer semiconductors designed by Nvidia, TSMC stands to benefit from the AI boom. Despite a slow recovery in smartphone demand, TSMC is supplying Apple Inc. with its more advanced and higher-priced 3-nanometer chips for its latest iPhones.
While concerns over friction with China emerged due to Taiwan’s election, analysts believe there will be minimal effect on TSMC. The ruling Democratic Progressive Party’s Lai Ching-te, who is viewed as a separatist by China, won the presidency, but the party lost control of the parliament. Lai supports TSMC’s move to expand manufacturing overseas, which strengthens the company’s influence internationally. China has expressed opposition to Taiwan’s independence but has shown a muted reaction to Lai’s victory.
TSMC’s upcoming financial results may highlight negative impacts from spending on factories in the US and elsewhere, as well as the strengthening of the Taiwan dollar and rising labor costs. Despite these challenges, the relative cheapness of TSMC’s stock, with a forward earnings estimate of 15 times and compared to its five-year median of 18 times, makes it attractive to investors.
Analysts from Goldman Sachs laud TSMC for its technology leadership and execution, positioning it better than its peers to capture the industry’s long-term structural growth in areas such as 5G and AI.
In conclusion, TSMC’s rally is driven by optimism surrounding AI, outweighing concerns over China relations post-election. The company’s dominance in AI chip production, strong technology leadership, and solid execution make it an attractive investment. Despite potential challenges, TSMC’s stock is undervalued compared to its historical averages, providing an opportunity for investors to capitalize on the company’s future growth.
Disclaimer: This article is generated by OpenAI’s language model.
