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Taiwan Semiconductor Manufacturing (ISIN: US8740391003) is one of the most exciting technology companies in the semiconductor industry. As early as 2023, we took a closer look at the market leader among contract manufacturers in a stock analysis. The conclusion at the time: the stock could be a buy candidate based on its valuation and growth potential. At the time, the very high HGI value of 15 was convincing. Today, at 12, it is still high, but the stock is also currently a buy candidate in the Levermann analysis.
Source: StocksGuide
In any case, the share price has developed positively since then. Over the course of a year, it has risen by 73 per cent. Recently, new all-time highs were even reached. Whether the development can continue as the last quarterly figures have turned out and whether the semiconductor share can be a buy in the end, will be examined in more detail in the following update of the Taiwan Semiconductor Manufacturing stock analysis.
TSMC operates a business model as a contract manufacturer for semiconductor chips and only produces chips designed by other companies. The company supports customers such as Apple, Nvidia, AMD, and Qualcomm in implementing their chip designs.
A key element of its success is its technological leadership in advanced manufacturing technologies such as 5 nm and 3 nm processes, which enable powerful and energy-efficient chips. And this is precisely where TSMC has unbeatable technological expertise, with a lead of several years. No one other than TSMC is able to mass-produce the latest semiconductor chips. Due to the complexity, the costs for a production site run into the billions – too much for most competitors. TSMC benefits from massive economies of scale and high investments in research and development, which keep the company at the forefront of semiconductor production. The fabless model with the strict separation of design and manufacturing is the actual success factor of the Taiwanese company. It stands for a high degree of specialisation and a low moat.
TSMC recorded strong growth in 2024, with revenue up 30 per cent year-on-year and net profit up 36 per cent.
Source: Financial data from Taiwan Semiconductor Manufacturing; StocksGuide
Particularly noteworthy was the strong demand for the leading 3 and 5 nanometre technologies, which together accounted for 60 percent of wafer sales. Overall, 74 percent of sales were accounted for by advanced technologies of 7 nanometres and above.
For the first quarter of 2025, TSMC expects seasonal influences in the smartphone market, but sustained demand from the AI sector. The company is also making specific forecasts: revenue of between $25 billion and $25.8 billion is expected for the first quarter of 2025. At the same time, the gross margin is expected to be between 57 and 59 per cent and the operating margin between 46.5 and 48.5 per cent.
In the big picture, the revenue momentum should continue. Revenue growth of almost 37 per cent in the best case ties in seamlessly with the strong growth in the fourth quarter of 2024. Based on the last twelve months (TTM), there has been a visible acceleration in growth momentum since last year.
Source: Development of revenue and EBIT growth TTM of TSMC shares; StocksGuide Charts
Looking further ahead, growth could continue in the medium term. Analysts forecast revenues of over USD 80 billion for 2028.
Source: Sales and margin forecast by Taiwan Semiconductor Manufacturing
The pace of growth will slow steadily over the years. However, analysts predict that sales growth will still be 17 per cent in 2027. The EBITDA margin will also weaken slightly over the years. However, at just under 68 per cent, it will remain close to the high levels of recent years.
Looking at the individual strategy analyses of the StocksGuide, Taiwan Semiconductor Manufacturing shares currently enjoy top scorer status in two strategies. Specifically, these are the high-growth investing strategy and the Levermann strategy. This makes the stock interesting from both a fundamental and a technical point of view.
Source: Taiwan Semiconductor Manufacturing Co. stock analysis
Fundamentally, above all, because of the high profitable growth with good balance sheet ratios and solid margins. And technically, because the stock also convinces in the Levermann strategy with a good price performance and surprise moments on the stock market.
A look at the valuation is worthwhile. Because it plays a decisive role in determining whether a stock is worth buying or not. And here, the stock of Taiwan Semiconductor Manufacturing, as a growth company, is no longer entirely convincing. A sales multiple of 12 is already considered very high. It is also above the medium-term average of 9.
Source: Chart of valuation ratios of Taiwan Semiconductor Manufacturing stock
The picture is different for the free cash flow multiplier on the enterprise value, which, at around 36, is also high but well below the average of 45. In any case, the very strong growth, which is also expected to remain high in the following quarters, must be taken into account. It justifies higher valuations.
TSMC's equity story is based on its clear leadership in global semiconductor manufacturing and the key role it plays in the technological progress of semiconductor development. Here, the company benefits from the increasing demand for high-performance chips, which are essential for future technologies such as AI, autonomous driving, 5G communication and edge computing. Thanks to its leading expertise in advanced manufacturing processes such as 3- and 5-nanometre technology, TSMC has a sustainable competitive advantage that is likely to last for years to come.
In addition, its business model as an independent contract manufacturer enables a broad and diversified customer base with technology giants such as Apple, Nvidia and AMD. High investments in research and development ensure that TSMC will remain an innovation leader in a capital-intensive market over the long term. Only a few can still play in this league, which gives TSMC a deep moat.
In addition to its technological expertise, the financials also impress with high margins and impressive earnings growth. And the stock has not disappointed.
A new record high shows that euphoria remains in the market. Above all, long-term growth drivers such as the increasing prevalence of AI applications and the digitalisation of many industries underpin the stock's potential. However, this could also be a major risk. With the release of DeepSeek, the Chinese ChatGPT, it also quickly became clear that demand could reach its limits or come to an abrupt end. With DeepSeek, you can achieve similar output qualities for a query – only with significantly less computing power.
Conversely, this means a major setback for hardware manufacturers such as Nvidia or TSMC, whose production facilities for AI chips are very important. But there are also other factors that represent risks – for example, geopolitical ones. China is now verbally claiming the island of Taiwan, and with it the land on which TSMC's production facilities are located, as its territory. In the medium term, this could even lead to a military escalation. But trade restrictions could also affect TSMC. This scenario would be a disaster for investors. The valuation would be far too high.
But investors seem to be putting precisely these scenarios on the back burner due to the strong growth rates. The current very good order situation outshines everything. It should continue. With the construction of further production facilities outside Taiwan, operational diversification is also taking place, which reduces the geopolitical risks in the long term. The USA and Europe are the focus of these efforts – probably also thanks to the generous subsidies.
Source: Analyst opinions on the Taiwan Semiconductor Manufacturing stock
Analysts are also optimistic. Almost all (96 per cent) see the share as a buy. The average price target is 249.35 US dollars – a potential of 19 per cent.