The semiconductor shortage that’s been hitting a lot of companies lately has left many flat-footed but done some real good for semiconductor makers. Taiwan Semiconductor (TSM), more commonly called TSMC, is one of the companies making hay while the sun shines on a massive shortage.
New reports suggest that TSMC is in a better position than ever to take advantage of the shortfall in chip supply. I’ve long been bullish on chip suppliers as a whole, and TSMC is no different.
The last 12 months for TSMC have been fairly solid, up until January of 2022. A spike took the share price to its highs for the year so far but proved unsustainable. The company began a five-month downward slide that took it under the $100 per share mark, also for the first time this year, where it’s remained for a little over a month.
Meanwhile, the latest news gave the company new life and reinvigorated investors. TSMC announced it was looking to build a new factory in Singapore, a move that would help it release more chips into a market starving for the same.
Wall Street’s Take
Turning to Wall Street, TSMC has a Moderate Buy consensus rating. That’s based on one Buy and two Holds assigned in the past three months. The average Taiwan Semiconductor price target of $112.50 implies 24.4% upside potential.
Analyst price targets range from a low of $100 per share to a high of $125 per share.
Investor Sentiment is Improving Somewhat
TSMC has quite a bit of support for its long-term potential. It currently carries a “perfect 10” Smart Score on TipRanks, which is the highest level of “outperform.” Thus, current factors suggest that it’s one of the stocks most likely to outperform the broader market.
Hedge funds, based on the latest word from the TipRanks 13-F Tracker, seem to agree. Hedge fund involvement with TSMC has increased by the largest proportion in at least the last two years, up from just under 58.3 million shares in December 2021 to just over 66 million shares in March 2022.
Meanwhile, insider trading at TSMC is a bit of a blank spot. There is currently no data in either direction on TSMC’s insiders.
Retail investors who hold portfolios on TipRanks are somewhat mixed. While in the last seven days, TipRanks portfolios holding TSMC were up 0.2%, they were also down 0.2% over the last 30 days.
Finally, there’s TSMC’s dividend history to consider, which looks sound. The dividend has been increasing for years when looking at it in its domestic currency. However, it has fluctuated a bit when converted back into U.S. Dollars, so that needs to be considered.
A Much More Reasonable Buildout
Being a chipmaker these days gives you a wonderfully envious position among businesses. You’re supplying a component that’s constantly increasing in demand across a range of industries. Leave aside the matter of shortages and supply chain puzzles for a moment. Even if these things didn’t exist, there still would be brisk demand for chips.
Just look at Ice Mountain (sometimes called Dirt Mountain depending on the time of year) in Detroit. It’s actually managed to expand to a second parking lot in Allen Park as of late March.
These cars are sitting around and waiting for chips and other components to complete their construction. The ongoing shortages of PlayStation 5 and Xbox One X units are also a testament to the chip shortage.
This means that every chip that can be made has a buyer pretty much ready to go. In fact, reports note that TSMC is planning another set of price hikes, as much as 8% higher.
With such a point in mind, building another factory is a perfectly rational idea. More chips in such an environment mean more sales on the hoof. Better yet, TSMC isn’t likely to suffer the same fate as Peloton (PTON) did when it expanded its construction operations. The chip shortage isn’t likely to slow up any time soon, unlike the demand for home gyms.
Sure, there’s a certain amount of risk that the chip shortage might break by the time the factory is established. However, given current conditions, the odds of the factory proving any less useful–as it did for Peloton–are comparatively short.
Better yet, the broader chip market is showing signs of being unable to keep up. Just two weeks ago, a Wall Street Journal report found that one of the biggest problems of the chip market is a shortage of chips. This time, it’s a shortage of chips required to make a chip manufacturing operation.
Thus, TSMC’s push to make more chips likely won’t be poached by other makers; they simply don’t have the necessary materials to step into the market.
Concluding Views
TSMC has plenty of good news behind it. It’s got a hotly desirable product line in the midst of a market absolutely clamoring for it.
Its plans to hike prices and ramp up production going into heavy demand are likely to push the company forward even harder. The fact that it’s trading below even its lowest price targets certainly doesn’t hurt either.
There’s always a certain amount of risk in any expansion. No one wants to be the next Peloton, with a factory all rigged up and no one looking to buy.
However, everything else sure seems to be lining up for a solid future. Those factors leave me bullish on a chipmaker that’s about to make a lot more chips.
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