Taiwan Semiconductor's AI Dominance Fuels Growth Amid Market Fluctuations

Taiwan Semiconductor's Trillion-Dollar Valuation: The Chipmaker Enabling AI Boom - Taiwan Semiconductor (NYSE:TSM)

Goldman Sachs sees Taiwan Semiconductor's AI leadership and price hikes boosting margins beyond 59%. Taiwan Semiconductor Manufacturing Co TSM stock surged 256% in the last five years as it succeeded in tapping the artificial intelligence boom as a leading contract chipmaker. It manufactures chips for everything from Nvidia Corp NVDA and Broadcom Inc AVGO processors to chips for Tesla Inc TSLA electric vehicles, especially their Full Self-Driving (FSD) systems, to Apple Inc AAPL smartphones. All the aforementioned companies command over a trillion-dollar market cap. International Data Corp expects Taiwan Semiconductor to command a 67% share of the global foundry market in 2025. Also Read: Harley-Davidson Struggles With Sales Drop In Q4, But New Touring Models Boost Market Share Reportedly, Taiwan Semiconductor is set for full-capacity production in the U.S. and Germany after commercializing its debut Japanese chip plant in Kikuyo, Kumamoto Prefecture, last December. Its total investment in the U.S. stands at $65 billion, where Apple is its largest customer. Also, Nvidia is exploring the production of the front-end process of Blackwell AI chips at Taiwan Semiconductor's Arizona plant. Meanwhile, the chipmaker remains committed to its ambitions for domestic expansion. It plans to build a massive 1nm fab in Tainan and expand advanced chip production with six new 12-inch plants. It also targets 1nm and 1.4nm expansion in Taiwan. The contract chipmaker's move reflects continued demand for Nvidia GPU growth and production of custom-made ASIC chips for Broadcom and Advanced Micro Devices, Inc AMD, which cater to smartphones, PCs, automotive, and other applications. All the aforementioned semiconductor companies were beneficiaries of the AI boom. Reportedly, a third of the ten global companies worth over $1 trillion came from the chip industry. The Taiwanese chipmaker's stock gained 59% in the last 12 months, reaching a trillion-dollar valuation as U.S. Big Tech giants, including Microsoft Corp MSFT, Amazon.Com Inc AMZN, Alphabet Inc GOOG GOOGL, Meta Platforms Inc META, and Apple Inc AAPL, splurge on their AI data center ambitions to tap the growing demand for AI and cloud computing. Daniel Ives of Wedbush told Reuters he expects tech stocks to surge 25% in 2025, backed by Trump's regulatory policies and AI capital expenditures. On February 10, Taiwan Semiconductor disclosed that it expects first-quarter revenue at the lower end of $25 billion -- $25.8 billion (versus the $24.97 billion consensus estimate) as the January 2025 earthquake in Taiwan affected its operations. However, the chipmaker reiterated its gross margin outlook of 57% -- 59%. The margin outlook signifies the chipmaker's AI chip moat, differentiating it from Intel Corp INTC and Samsung Electronics SSNLF. Taiwan Semiconductor's fourth-quarter revenue hit $26.88 billion, up 38.8% (versus a consensus estimate of $26.28 billion), driven by demand for AI chips and advanced node technologies. As its 3-nm and 5-nm chips gained traction, its gross margins expanded by 600 bps to 59%. The Taiwanese chipmaker committed fiscal 2025 capex worth $38 billion -- $42 billion (versus $29.8 billion a year ago), signifying continued AI momentum. Taiwan Semiconductor trades at a PE ratio of 29.9x versus Nvidia's 51.3x and Apple's 36.1x. Goldman Sachs' Bruce Lu had expressed optimism over Taiwan Semiconductor's prospects, citing AI demand and advanced node growth. In 2025, Taiwan Semiconductor's price hikes for 3 and 5-nm nodes (while Intel and Samsung grappled with their AI technology) could boost its margins to over 59%. Taiwan Semiconductor aggressively expanded its CoWoS capacity in 2024 and will double its capacity again in 2025. Lu sought Taiwan Semiconductor's view on potential new applications beyond AI, such as PCs or smartphones that will also adopt the CoWoS technology. Taiwan Semiconductor has around 31.6 million shares in the U.S. ETF market. The largest ETF holder is the VanEck Semiconductor ETF SMH with approximately 16.60 million shares. Price Action: TSM stock closed higher by 0.89% to $207.95 on Monday. Also Read: Fiserv Q4 Earnings: Merchant, Financial Solutions Fuel Growth, Double-Digit Outlook For 2025 Image via Shutterstock TSMTaiwan Semiconductor Manufacturing Co Ltd$207.510.67%Overview Rating:Good62.5%Technicals Analysis1000100Financials Analysis400100WatchlistOverviewAAPLApple Inc$227.48-0.07%AMDAdvanced Micro Devices Inc$110.252.50%AMZNAmazon.com Inc$232.901.64%AVGOBroadcom Inc$235.044.52%GOOGAlphabet Inc$188.010.46%GOOGLAlphabet Inc$186.150.44%INTCIntel Corp$19.733.30%METAMeta Platforms Inc$716.520.28%MSFTMicrosoft Corp$412.110.58%NVDANVIDIA Corp$133.342.70%SMHVanEck Semiconductor ETF$249.621.89%SSNLFSamsung Electronics Co Ltd$42.48-13.8%TSLATesla Inc$349.15-3.45%Market News and Data brought to you by Benzinga APIs

2 Reasons Taiwan Semiconductor Is a Must-Buy for Long-Term Investors | The Motley Fool

Few companies have as strong a growth trajectory as Taiwan Semiconductor Manufacturing (TSM 0.56%). TSMC, as it's also known, is the world's largest contract chip manufacturer, which means that it acts as a fabrication company for those who do not have the capabilities to produce chips themselves. This positions TSMC nicely for the road ahead and makes it a must-own for nearly all investors. However, a wrench was recently thrown into the AI investment thesis by DeepSeek's R1 model, which has taken the world by storm. So, is this a big deal for TSMC? Or will it be OK in the long run? Although DeepSeek's R1 model is a true innovation, it doesn't affect the long-term viability of investing in TSMC. The biggest breakthrough DeepSeek found in its generative AI model is a way to make training more efficient, which requires less computing power. The market assumed this meant that companies would need to buy less computing power to process these models, but that's not the right way to look at it. Instead, AI spending will likely continue at the same pace, but the models will become more efficient. With more-efficient models and increased training power, the pace of innovation and usefulness will ramp up, accelerating the payoff period for all of these AI investments. Regardless, this doesn't affect the TSMC investment thesis because it will benefit either by making chips used in GPUs to train these AI models or by making chips used in devices that run these AI models for an end user. Because TSMC is a top supplier for nearly all sectors, it still has a bright future. So investors should consider taking advantage of the stock's dip; buying opportunities like this don't come around very often. After nearly all AI stocks sold off on Monday following reports of DeepSeek's model, TSMC stock is about 10% off its all-time high. This represents great value, especially with the company trading for 29 times trailing earnings and 22 times forward earnings. This price is a bargain for the growth that the chipmaker is expected to put up. Its management sees strong increases over the next five years, with revenue companywide expected to enjoy a 20% compound annual growth rate (CAGR). AI-related hardware is forecast to see even better gains, with management calling for a 45% CAGR for the next five years. Chip orders are often placed years in advance, and a single breakthrough from an AI competitor will not change that pattern. The company's growth trajectory is still incredibly strong, and other factors will help it achieve that growth rate. These include new chip technologies, which are slated to be launched later this year. TSMC's 2-nanometer (2nm) chip provides serious efficiency gains and can provide the same computing power as previous-generation 3nm chips, while consuming 20% to 30% less energy. Later on in 2026, the company's A16 chip will debut, providing an extra 15% to 20% energy savings from the 2nm chip. Energy consumption is a huge operating cost for any AI hyperscaler (be it ChatGPT or DeepSeek), and so these new chip generations should be popular with hyperscalers. Plenty of growth remains in the chip space alongside groundbreaking innovations. While DeepSeek's efficiency is impressive, it will likely be copied by many of the domestic AI platforms over the coming months and bring newfound efficiency to the AI world. This isn't going to stop AI investments, so the dip in TSMC's stock should be seen as a buying opportunity.

If I Could Only Buy 1 Semiconductor Stock, This Would Be It | The Motley Fool

Taiwan Semiconductor's essential role in enabling the AI infrastructure ecosystem worldwide makes it relatively resilient to market downturns. The last few days have been quite challenging for the semiconductor industry. The news of Chinese start-up DeepSeek releasing its open-source AI model DeepSeek-R1 -- which it says cost less than $6 million to create -- has triggered concerns about drastic declines in AI spending. Not surprisingly, semiconductor stocks that have benefited dramatically from the explosive global demand for AI infrastructure are suffering significant drawdowns in this tech sell-off. However, few semiconductor stocks have been negatively affected by disproportionate fears about future AI spending. One is Taiwan Semiconductor Manufacturing (TSM -2.08%) or TSMC, which is estimated to account for 65% of the global foundry market in 2024. Since efficiency improvements can result in better monetization of AI technologies, many technology companies may even increase spending on AI-optimized hardware. Furthermore, semiconductors are used across sectors for multiple applications, excluding AI. Hence, as a leading foundry player, TSMC is relatively immune to variations in global AI spending, so it makes sense to consider it a compelling semiconductor pick in 2025. There are also other reasons why TSMC can be a worthwhile investment for astute investors in 2025. As the largest independent foundry in the world, TSMC has been exceptionally successful in managing growth and profitability. This is evident in that 2024 revenues soared 30% year over year to $90 billion, while gross margins expanded by 1.7 percentage points to 56.1%. Management has also provided healthy guidance for the first quarter of fiscal 2025. Revenues are expected to fall in the range of $25 billion to $25.8 billion, up 34.7% year over year at the midpoint. In comparison, gross margins and operating margins are expected to be in the range of 57% to 59% and 46.5% to 48.5%, respectively. Thanks to its technological leadership in advanced semiconductor manufacturing and its broad customer base, TSMC's high-performance computing (HPC) segment has become its largest revenue contributor. In 2024, HPC revenues were up 58% year over year and accounted for nearly 51% of the company's total revenues. Smartphones, Internet of Things, and automotive segments contributed 35%, 6%, and 5%, respectively, to total revenues. The diversified client base makes TSMC relatively resilient to marketwide headwinds. TSMC has also been at the forefront of advanced semiconductor manufacturing. In 2024, the high-margin category of advanced process nodes accounted for 69% of its wafer revenue, up significantly from 58% in 2023. The company aims for volume production with a next-generation 2-nanometer process node in the second half of 2025. Plus, the company has introduced N2P as an extension of the 2-nanometer process node, with better performance and power efficiency. TSMC expects to commence volume production of N2P in the second half of 2026. TSMC has planned to spend capex of $38 billion to $42 billion in 2025, with approximately 70% allocated to advanced process technologies, 10% to 20% to specialty technologies, and the remaining 10% to 20% to advanced packaging, testing, mask making, and other activities. This level of capex spending is expected to strengthen TSMC's leadership position in the global foundry market. Undoubtedly, exceptional global demand for high-performance computing and AI applications has been a major tailwind for TSMC in recent years. TSMC's AI accelerators (including AI-optimized graphics processing units (GPUs), application-specific integrated circuits (ASICs), and high-bandwidth memory (HBM) controllers) accounted for a mid-teens percentage of total revenue in 2024. Although this revenue has more than tripled year over year, TSMC expects AI accelerator revenues to double in 2025, driven by solid demand at data centers. Demand for AI accelerators in edge computing or on-device AI is also booming. TSMC stands to benefit from the estimated 5% to 10% more silicon content being used in these AI-capable devices. The company also expects a replacement cycle in consumer electronics to further drive demand. Subsequently, TSMC estimates its AI accelerator revenues will grow annually at a mid-40% compound annual growth rate (CAGR) from 2024 to 2029. Despite its many strengths, TSMC trades at 23.7 times forward earnings. That's cheaper than peers like Nvidia and ASML, which are trading at a forward price-to-earnings (P/E) of 28.09x and 30.2x, respectively. Furthermore, analysts expect TSMC's revenues and earnings per share to grow year-over-year by 27.75% and 28.1%, respectively, in 2025. Coupled with a dividend yield of 0.94% and a healthy dividend payout ratio of just 27.3%, TSMC seems like a compelling pick in 2025.

Meet the Monster Stock That Continues to Crush the Market | The Motley Fool

There is no shortage of artificial intelligence (AI) stocks that have trounced the market over the past few years. Even after a recent tech stock decline, brought on by rising competition from a cheaper AI model created by China-based DeepSeek, many AI stocks are still easily outpacing the market. Chipmaker Taiwan Semiconductor Manufacturing (TSM 0.56%), also called TSMC, is one such monster stock that continues to crush the market despite the recent rout. At the time of this writing, it has gained 79% over the past 12 months, easily beating the S&P 500's 23% gains. Not only is TSMC still outpacing the market, but I also think it still has room to run despite some of the recent pessimism that's entered the AI stock space. Here's why. TSMC is one of the world's leading semiconductor manufacturers and, most importantly, the dominant maker of AI chips, producing an estimated 90% of the most advanced processors. Taiwan Semiconductor has benefited from an increase in AI processor demand driven by companies competing for dominance in the AI market. For example, as OpenAI needs more chips to train ChatGPT, it leads to more orders for Nvidia processors, which in turn drives demand for TSMC's manufacturing. Another thing pushing Taiwan Semiconductor forward is the fact that its technology is far ahead of other chip manufacturers. It's already a leader in 3-nanometer (3nm) chip manufacturing, which the company says is the industry's most advanced semiconductor technology and is far ahead of even advanced 5nm manufacturing. TSMC will likely keep this competitive advantage because it will begin its next generation of chip manufacturing, 2nm, later this year. The company says its 2nm tech will be the new standard in advanced semiconductor manufacturing and "will further extend our technology leadership well into the future." The recent pullback in AI stocks has understandably made some investors wonder whether they should rethink their AI strategies. But what I think some people are missing is that semiconductor demand could actually increase with more-efficient AI models. For example, Microsoft CEO Satya Nadella said recently that "As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can't get enough of." He referenced Jevons paradox, which says that when technological advancements make products more efficient to use, demand increases because it's more easily accessible to more people. In the case of AI processors, DeepSeek's potential to use fewer of them efficiently to build an advanced AI chatbot model could actually spur processor sales. Companies that previously thought they were priced out of developing expensive AI models will begin to buy chips to make their own inexpensive models. Also, Microsoft and OpenAI are looking into whether DeepSeek improperly used OpenAI data. It's worth restating what's still true about Taiwan Semiconductor, no matter what comes to light about DeepSeek's potential AI advancements: In short, nothing much has changed for TSMC. Even more good news for investors is that Taiwan Semiconductor's stock can be purchased at a relative discount right now. The shares have a forward price-to-earnings ratio (P/E) of just 23, nearly on par with the S&P 500's forward P/E. That means the world's leading AI processor manufacturer looks well priced at a time when AI demand is accelerating. That sure sounds like a good buying opportunity to me.

2 Monster Stocks to Hold for the Next 5 Years | The Motley Fool

One of the best ways to make money in the stock market is by buying and holding solid companies for the long run, as this strategy not only allows investors to take advantage of secular or disruptive trends, but also helps them benefit from the power of compounding. For instance, an investment of $1,000 in shares of Amazon and Netflix five years ago has increased by 2.3x and 2.8x. These companies have helped investors take advantage of growth trends such as cloud computing, e-commerce, and video streaming. That's the reason why buying and holding on to top artificial intelligence (AI) stocks for the next five years could turn out to be a smart move, thanks to the rapid growth of this technology. Here's a closer look at two names in AI that are among the dominant forces in their industries and could deliver outstanding gains to investors over the next five years. Palantir Technologies (PLTR -0.39%) is one of the hottest names in the AI software market, as its Artificial Intelligence Platform (AIP) is turning out to be a major success. AIP is a software platform, using which customers can build and deploy AI applications specific to their businesses with the help of large language models (LLMs) in real time. According to Palantir, customers using AIP have witnessed significant improvements in their operations. For instance, Palantir's AIP allowed an insurance company to automate the process of underwriting, thereby "reducing the typical underwriting response time from over two weeks to three hours," according to remarks made on the company's third-quarter earnings call. Meanwhile, rail transportation products and services provider TrinityRail witnessed a $30 million improvement in its bottom line in just three months following the deployment of AIP. And customers who have already deployed Palantir's AIP are expanding the adoption of this software platform. The company pointed out in its November 2024 earnings conference call: A large American equipment rental company expanded its work with us less than eight months after converting to an enterprise agreement, increasing the account ARR twelvefold; a bottled water manufacturer, a specialty pharmaceutical company, and an agricultural software provider all signed seven-figure ACV deals less than two months after their initial boot camps. These deals are leading to terrific growth in Palantir's transaction sizes, customer count, and revenue pipeline. This was evident in Palantir's latest quarterly report. Palantir stock shot up 22% in extended trading following the release of its fourth-quarter 2024 results on Feb. 4. The company's top and bottom lines exceeded expectations, with its revenue growing 36% year over year. Its earnings grew at a faster pace of 75% thanks to robust unit economics, driven by its land-and-expand strategy. For example, Palantir closed 129 deals worth $1 million or more last quarter, an increase of 25% from the prior year. There was an increase in the number of $10 million deals as well to 32 from 21 in the year-ago period. This improved spending explains why Palantir's adjusted operating margin increased by 11 percentage points year over year to 45% last quarter. Looking ahead, the size of the AI software platforms market is expected to jump by almost 5.5x between 2023 and 2028, according to IDC. That would translate into an incredible annual growth rate of more than 40%. The good part is that Palantir's commercial revenue is now growing at a faster pace than the end market, suggesting that the company is gaining more ground in this lucrative space. Of course, the valuation remains a stretch, as Palantir is trading at a really expensive 80 times sales and 175 times forward earnings. Investors, however, should note that it may be able to justify that expensive valuation by cornering a bigger share of the AI software platforms market, as it is considered to be one of the leading solution providers in this space, with solid unit economics that should translate into healthy long-term earnings growth. Taiwan Semiconductor Manufacturing (TSM -2.08%), popularly known as TSMC, is the world's largest semiconductor foundry and manufactures chips for fabless semiconductor companies such as Nvidia, AMD, and Qualcomm, along with consumer electronics companies like Sony and Apple. It controlled an estimated 65% of the global foundry market last year, which was way higher than the second-place Samsung's share of just 9.3%. TSMC, therefore, is in a terrific position to capitalize on the secular growth of the semiconductor market for the next five years. Third-party estimates are forecasting the semiconductor industry to generate nearly $1.5 trillion in revenue in 2030, nearly double its size in 2022. AI is set to play a crucial role in driving this market's growth over the long run, as the market for AI chips is forecast to increase at almost 38% a year through the end of the decade. Not surprisingly, TSMC is forecasting its revenue to increase at a compound annual growth rate of 20% for the next five years. Based on the company's 2024 revenue of $90 billion, TSMC's top line could hit $224 billion after five years. That could translate into terrific upside on the stock market, based on its five-year average price-to-sales ratio of 9, which points toward a market cap of just over $2 billion. That would be nearly double its current market cap. We have already seen that TSMC is the dominant player in the semiconductor foundry market. This explains why the company is in a position to charge a premium for its services and raise prices. What's worth noting is that TSMC is already putting its pricing power to use. The company's largest customer, Apple, is reportedly paying three times more money to TSMC for its chips as compared to what it was a decade ago. That's not surprising, as TSMC is now manufacturing chips using more advanced nodes, providing more processing power and reducing power consumption at the same time. As such, there is a good chance that TSMC's earnings growth will be stronger than its revenue growth over the next five years. Analysts have raised their earnings expectations from TSMC for the next three years. However, this discussion suggests that its bottom line could grow at a faster pace than analysts' expectations. That's why it would be a smart move to buy and hold TSMC stock for the long run, considering that it is trading at a fairly attractive 24 times forward earnings right now, which is lower than the tech-laden Nasdaq-100 index's forward earnings multiple of 27.