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Can Taiwan Semiconductor  Continue its Upswing?
Stock Analysis & Ideas

Can Taiwan Semiconductor Continue its Upswing?

Taiwan Semiconductor Manufacturing Co. (TSM) or TSMC, a chip manufacturer, is a stock that has certainly grabbed the attention of many investors.

The shares of this company gained around 50% and 308% over the past year and the last five years, respectively.

Since the outbreak of the pandemic, sales of computers, video games, and other electronic devices, all of which rely on microchips, surged dramatically. As a result, TSMC benefitted and became a highly popular stock.

The consumer demand for high-end smartphones and laptops should continue to rise as the globe becomes increasingly data-driven, driving up chip processing demand even further. Also, the continuous global deployment of 5G, as well as AI and automation applications, should increase demand for better and upgraded chips.

Based on these factors, I am bullish on TSMC stock. (See Taiwan Dividend Date and History on TipRanks)

Why is TSMC Gaining Importance?

The answer is very simple. Chip Shortage.

The story of the global chip shortage is not new. It started three years ago, with the trade conflicts between the U.S., China, Japan, and South Korea, which disrupted the semiconductor supply chains worldwide.

The point is that it’s become worse in the last year. There have been huge inventory mismatches across the supply chain since the pandemic first struck last spring, generating considerable anxiety around the world.

This resulted in inventory shortages at auto and consumer electronics manufacturers.

Being the world’s largest contract microchip manufacturer, the entire world is looking at TSMC to solve the chip shortage crisis as soon as feasible.

TSMC is putting forth a lot of work to solve this problem, but no one knows when this problem will come to an end.

However, the good news is that TSM stated in July that the chip shortfall that plagued automakers this year was expected to subside over the next few months.

Will Intel’s Announcements Intensify Competition?

Intel (INTC) and Samsung (SMSN) are other advanced chipmakers. Both the companies have been trying to increase their share in the chip market.

When it comes to Intel, the company in March revealed plans to increase its expenditure on programs that could help address the chip shortage. It intends to invest $20 billion in Arizona to construct two new chip production factories.

In July, the company reportedly announced its intention to buy GlobalFoundries for $30 billion. The buyout could immediately increase its manufacturing capacity, both for internal use and for third-party usage.

Further, in July, Intel made changes to its node naming by re-naming two of its codes. The chipmaker also presented a product strategy for the years 2023-2024.

Through these efforts, Intel’s CEO, Pat Gelsinger, is moving quickly to get the company back on track, as it has been languishing for a few years now.

Impact on TSM

The Taiwanese manufacturer, which makes chips for companies like Advanced Micro Devices (AMD), Apple (AAPL), and NVIDIA (NVDA), enjoys a strong competitive edge over its peers.

Though Intel’s endeavors are likely to intensify competition for TSMC, the latter has been taking all possible efforts to maintain its leadership position in the chip market.

For one, TSMC said in April that it would spend $100 billion over the next three years to expand capacity at its factories. Furthermore, in May, the business revealed plans to construct its own $12 billion factories in Arizona to accommodate the growing demand for chips across all industries.

In a separate endeavor to capitalize on the growing demand for chips, TSMC is reportedly planning to boost chip prices, beginning next year.

Given that TSMC is already struggling with rising costs, the latest move may provide some relief to the company. It might be able to assist TSMC in improving its margin profile.

In response to price hike news, Needham analyst Charles Shi reiterated a Buy rating on the stock, with a price target of $138.  

Shi commented, “We believe TSMC will push for a pricing increase due to recent margin woes amid a global chip shortage, and will not see strong pushback from its customers as they already took higher prices elsewhere.”

What Analysts Are Saying About TSM Stock

The analyst community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 2 Buys and 2 Holds.

As for price targets, the average Taiwan Semiconductor Manufacturing Co. price target of $131.00 implies 10.6% upside potential to current levels.

Disclosure: At the time of publication, Shalu Saraf did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

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