Stock Spotlight: Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)

This week's Stock Spotlight is NYSE-listed Taiwan Semiconductor Manufacturing Company Limited.

About Taiwan Semiconductor Manufacturing Company Limited.

Taiwan Semiconductor Manufacturing Company Limited, together with its subsidiaries, manufactures, packages, tests, and sells integrated circuits and other semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the United States, and internationally. It provides a range of wafer fabrication processes, including processes to manufacture complementary metal- oxide-semiconductor (CMOS) logic, mixed-signal, radio frequency, embedded memory, bipolar CMOS mixed-signal, and others. The company also offers customer and engineering support services; manufactures masks; and invests in technology start-up companies; researches, designs, develops, manufactures, packages, tests, and sells color filters; and provides investment services. Its products are used in high performance computing, smartphones, Internet of things, automotive, and digital consumer electronics. The company was incorporated in 1987 and is headquartered in Hsinchu City, Taiwan.



Source: Yahoo Finance

Key Stats

Source: Yahoo Finance. Data as of 19/02/25.

Growth Potential

• Long-term macroeconomic tailwinds as sources of demand for semiconductors shift from smartphones to AI & 5G. Development of 5G flows through multiple verticals such as smartphones and autonomous driving.
• Market leading position with a total foundry market share of 57% and room for further consolidation. TSMC’s significant expenditure on R&D should help it maintain this leadership position.
• Excellent financial performance track record (delivered 17.2% revenue CAGR and 16.7% earnings CAGR since listing in 1994) and fortress balance sheet with semiconductor industry's highest credit rating (S&P: AA-, Moody's Aa3)
• TSMC is leading the race in developing the new age of semiconductor chips such as Logic Technology, with thinner wafers being developed every year.
• High barriers to entry – significant level of capital and know-how required to start a semiconductor business.
• Independent and pure-play focus on manufacturing without marketing or branding of product eliminates conflict of interest with customers.
  

Key Risks

• Moderating global economic growth, especially in the U.S. and China.
• Operational risks such as suboptimal manufacturing quality of products.
• Softening smartphone sales and production. There may be a time-lag before the layout of 5G and AI materialise into sales for TSMC, e.g. regulatory restrictions.
• Increasing investment in capacity outside of Taiwan may hinder operating leverage..
• Unfavourable exchange rate movements between NT$ and currencies used in transactions (however, TSMC utilises hedging strategies to manage this risk).
• Geopolitical risks.