TSMC: A Forward-Thinking Investment in Semiconductor Growth
Making precise predictions about stock performance over the next five years presents a challenge. While I acknowledge the likelihood of inaccuracies, I maintain a strong belief that Taiwan Semiconductor (NYSE: TSM) will experience growth during this period.
My assessment suggests a potential increase of 128% over five years for TSMC. Several factors form the basis of this outlook, and if it proves correct, TSMC stands out as a compelling stock choice today.
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Expansion of TSMC’s Manufacturing Capabilities in the U.S.
Taiwan Semiconductor is a prominent player in the contract chip manufacturing market, producing chips for clients unable to do so themselves. Its partnerships include leading technology companies like Apple and Nvidia, yet TSMC’s client base extends well beyond these giants. Continuous innovation and reliable execution have cemented TSMC’s status, and it is poised to maintain this leadership role as chip production experiences a resurgence in the U.S.
The company has announced a significant investment plan totaling $100 billion to expand its facilities in the U.S., which includes two packaging centers and a research and design operation. While some suggest this decision arises from pressure from President Donald Trump, both leaders from Taiwan and TSMC assert that client demand for U.S.-made chips drives this expansion. Notably, TSMC’s existing Arizona facility has already booked its production capacity through 2027, indicating that their initial U.S. footprint was insufficient.
Currently, tariff considerations are top of mind for investors. Although semiconductors are presently exempt from tariffs, the administration is reviewing their status, which could change. As developments unfold, TSMC is proactively advancing its expansion into the U.S., aligned with Trump’s vision. This shift is evident, with TSMC already manufacturing Nvidia’s new Blackwell GPU chips in Arizona.
As TSMC continues its positive trajectory in the U.S., what implications does this hold for its stock performance?
Long-Term Outlook for TSMC Stock
Finally, being a chip foundry gives TSMC a unique vantage point on chip demand trends. With orders often placed years ahead, investors should pay attention when TSMC’s management shares predictions regarding its future prospects.
For its five-year outlook, TSMC’s leadership expects a compounded annual growth rate (CAGR) of nearly 20%. Assuming a slightly conservative CAGR of 18%, TSMC’s revenue could surge by 128% over the next five years.
If TSMC is able to maintain its margins, the correlation between revenue growth and stock price appreciation seems reasonable. At present, TSMC stock trades at 22 times its trailing earnings, below the historical average for the past five years.
TSM PE Ratio data by YCharts
Moreover, from a forward earnings perspective, TSMC’s stock remains competitively priced compared to historical data. The S&P 500 trades at 22.1 times trailing earnings and 20.2 times forward earnings, positioning TSMC at a slight discount relative to its historical valuations and in line with overall market performance.
These valuations appear sound, leading me to conclude that, given TSMC’s revenue growth—and assuming stable margins—there should be a positive translation to stock price growth over the next five years.
Thus, it is reasonable to consider TSMC a strong stock to buy now, particularly if investors can ignore short-term concerns surrounding tariffs and focus instead on the company’s long-term growth potential.
Should You Invest $1,000 in Taiwan Semiconductor Manufacturing Today?
Before making a purchase of Taiwan Semiconductor Manufacturing stock, keep the following in mind:
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Keithen Drury has positions in Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Nasdaq, Inc.
