Taiwan Semiconductor Manufacturing Company (TSMC), widely recognized as the global leader in semiconductor contract manufacturing, has seen its stock rise by an impressive 75% year to date in 2024. This growth has been driven by the AI infrastructure boom, as tech giants like Nvidia and Apple rely on TSMC’s cutting-edge technology to meet their ever-increasing demand for advanced chips.
Despite this robust performance, investors are now asking: Is TSMC stock still a buy? Let’s dive into the reasons behind TSMC’s dominance in the semiconductor industry, explore its potential risks, and determine whether it remains a compelling investment opportunity.
Riding the Wave of AI Infrastructure Expansion
TSMC is the world’s largest contract semiconductor manufacturer, commanding over 60% of the market share. Its clients include industry heavyweights like Nvidia, Apple, and AMD, making it a key player in the AI revolution. Manufacturing chips is a capital-intensive process, requiring advanced foundries and high utilization rates to remain profitable. TSMC has consistently maintained a wide moat in this space, thanks to its scale, innovation, and technological edge.
Key Factors Driving TSMC’s Growth:
- AI Chips and Nvidia: TSMC is the primary manufacturer of Nvidia’s graphics processing units (GPUs), which are in relentless demand due to the widespread adoption of artificial intelligence. The company is scaling its manufacturing capabilities to support Nvidia’s ambitious goals.
- Apple’s Exclusive Partnership: Apple, TSMC’s largest client, has already booked all of TSMC’s next-generation 2nm technology for its upcoming chip designs. Meanwhile, TSMC is ramping up its production of 3nm technology, which even Intel has adopted for its own products.
- Pricing Power: Thanks to its dominant position and customer success, TSMC has demonstrated strong pricing power. According to Morgan Stanley, the company plans to increase prices by up to 10% in 2025 for AI semiconductors and advanced products like chip-on-wafer-on-substrate technology.
- Improving Margins: TSMC’s gross margins have surged from 43.4% two years ago to 57.8% last quarter, showcasing its ability to turn revenue into profit effectively. Higher gross margins also indicate stronger pricing power and operational efficiency.
Why TSMC Stands Out Among Competitors:
While TSMC is thriving, its competitors are struggling: