Summary: Taiwan Semiconductor Manufacturing (TSMC) is an undervalued stock in the artificial intelligence (AI) industry, presenting a valuable opportunity for investors. Despite the overall lack of affordable AI stocks, TSMC stands out with its attractive valuation. As a trusted partner to tech giants like Apple and Nvidia, TSMC has established itself as a go-to contract chipmaker. With the increasing demand for powerful chips in data centers, smartphones, and emerging technologies, TSMC is well-positioned to thrive. While the cyclical nature of the global economy may impact TSMC’s sales, experts forecast a significant revenue increase by 2025. The company’s high net profit margin further reflects its financial strength.
The primary reason for TSMC’s relatively inexpensive shares lies in rising geopolitical tensions between Taiwan and China. This political risk has made some investors cautious, alongside the concern of China’s repeated promise/threat to reunify Taiwan. However, TSMC’s partnership with Nvidia and its crucial role in manufacturing the latter’s advanced chips indicates the shared risks between the two companies. The semiconductor industry, particularly TSMC, plays a pivotal role in international trade, causing any supply chain disruption due to geopolitical issues to impact various sectors significantly.
To mitigate risks, TSMC is actively pursuing manufacturing diversification. The company plans to open a new fabrication plant in the US next year and another in Japan, with the possibility of a third plant in Japan for cutting-edge 3-nanometer chips. This geographical diversification serves to de-risk the investment and ensure a more stable future for TSMC.
Sitting at the heart of the semiconductor industry, TSMC is well-positioned to harness the potential of the AI revolution. Despite the current AI chips contributing less than 10% to its revenue, the market for AI chips is predicted to experience exceptional growth in the next five years. Even Warren Buffett, an astute investor, acknowledges that no competitor stands on the same level as TSMC in the chip industry.
Considering TSMC’s resilient position, I have chosen to add this stock to my portfolio, driven by the pursuit of market-beating returns. While risks remain, such as geopolitical tensions and the cyclical nature of the industry, I am confident in TSMC’s ability to navigate these challenges and deliver long-term value to shareholders.
The source of the article is from the blog radardovalemg.com