Taiwan Semiconductor is an important foundry and should reap the benefits of continuing chip demand growth.

The shares of the company are priced at an acceptable valuation, which should provide solid returns in the future years. However, investors need to be aware of potential risks such as conflict between China or Taiwan.

Overall, Taiwan Semiconductor Manufacturing Company has my support. (See Analysts’ Top Stocks on TipRanks)

Long-Term Tailwinds

Taiwan Semiconductor Manufacturing Company, a top-ranking foundry, manufactures semiconductors to be sold by other companies.

Nvidia (NASDAQ) and AMD (AMD), among others, design semiconductors but don’t manufacture them. TSM and other foundries are what they use to produce the chips.

Strong industry tailwinds in the semiconductor sector make Taiwan Semiconductor’s growth prospects attractive. Modern life requires that more chips are used in modern products like smartphones, cars and smart appliances.

Taiwan Semiconductor is able to consistently grow its profits and revenue because many top chip companies don’t manufacture the chips.

This should be true in the future, at least if Taiwan Semiconductor’s forecasts are correct. Right now analysts predict revenue to rise from $56.4 million this year, to $93 Billion in 2024.

Analysts predict that Taiwan Semiconductor will grow its earnings per shares by 20% to $4.80 next year and 24% the year after, according to the consensus estimate of Taiwan Semiconductor’s earnings per share at $5.94 in 2023.

It’s fine to value

Taiwan Semiconductor Manufacturing’s stock trades at 27.7x expected net profit this year. This is not a low price.

However, based on 2022 forward earnings estimates, shares appear to be significantly cheaper than they were in 2022. They are currently valued at 23.1x the 2022 net profit.

It doesn’t feel too costly when you consider the projected growth of the company over the next few years.

Taiwan Semiconductor is a well-respected stock that deserves a higher valuation than the average. Its strong margins, large moat and industry tailwinds should allow it to maintain substantial growth over many years.

However, Taiwan Semiconductor has been exposed to geopolitical tensions between China and Taiwan. Recently, reports indicated that tensions were rising again. This might signal trouble for Taiwan Semiconductor.

Wall Street Take

Looking at Wall Street, Taiwan Semiconductor Manufacturing Company is rated Moderate Buy based upon one Buy in the last three months.

The average target price for Taiwan Semiconductor is $138. This implies a 24.5% upside possibility.

Disclosure: Jonathan Weber held a position at Taiwan Semiconductor Manufacturing Company for a considerable time prior to publication.

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