Taiwan Semiconductor Stock (TSM) Strong Growth and Good Value (Q4 2024 Earnings)

Taiwan Semiconductor Manufacturing Company (NYSE:TSM) has long been a leader in the semiconductor industry, a sector integral to global technological advancement. In recent years, TSM's stock has gained significant attention due to its strong financial performance and growth prospects. This blog explores why TSM remains a compelling investment, analyzing its business overview, financial achievements, stock performance, growth potential, and associated risks.

About TSMC

Taiwan Semiconductor Manufacturing Company (TSMC) was founded in 1987 and has its headquarters in Hsinchu, Taiwan. As the world’s largest dedicated independent semiconductor foundry, TSMC plays a pivotal role in fabricating chips for tech giants like Apple, NVIDIA, and AMD. The company specializes in advanced semiconductor manufacturing technologies, such as 5-nanometer and 3-nanometer nodes, essential for applications ranging from smartphones to artificial intelligence and automotive systems. TSMC’s technological leadership and commitment to innovation have solidified its reputation as a cornerstone of the global semiconductor supply chain.

Read More: Delcath Systems Stock (DCTH) Strong Growth and Good Value (Q3 2024 Earnings)

TSMC Financial Performance

According to Stockanalysis, TSMC’s financial performance in recent quarters has been stellar, reflecting its industry dominance and ability to navigate challenging market conditions.

For Q4 2024, TSMC reported revenue of NT$868.46 billion, a remarkable 38.84% increase from NT$625.53 billion in Q4 2023. Earnings per share (EPS) rose by 56.96% year-over-year, reaching NT$14.45 compared to NT$9.21 in the previous year’s same quarter. These results underscore the company’s ability to capture demand in a growing market.

On a trailing twelve-month (TTM) basis, revenue reached NT$2,894.31 billion, representing a 33.89% increase compared to NT$2,161.74 billion in Q4 2023. EPS over the same period grew 39.92%, climbing from NT$32.34 to NT$45.25. Additionally, free cash flow per share (TTM) surged by 39.92%, from NT$11.27 to NT$33.56, highlighting TSMC’s robust operational efficiency and ability to generate shareholder value.

TSM Stock Price Performance and Valuation

Over the past year, TSMC’s stock has delivered stellar returns, climbing 111.2% to a recent price of $215.52 per share, significantly outperforming the S&P 500’s 24.5% gain during the same period. Despite this impressive rally, the stock's valuation metrics indicate there is still room for further growth. TSMC currently has a Price-to-Sales (P/S) ratio (TTM) of 9.85, a Price-to-Earnings (P/E) ratio (TTM) of 24.31, a Forward P/E ratio of 18.6, and a Price-to-Free-Cash-Flow (P/FCF) ratio (TTM) of 32.9. Analysts project a 25% revenue growth and a 29% EPS growth in 2025, highlighting confidence in the company’s ability to maintain its strong momentum. Compared to many other technology stocks, TSMC’s forward P/E of 18.6 is particularly attractive, considering its growth potential, robust market positioning, and industry-leading technological expertise.

TSMC Growth Potential

Several factors position TSMC for sustained growth:

1. Technological Leadership: TSMC’s continuous investment in advanced manufacturing technologies, such as 3-nanometer and emerging 2-nanometer nodes, ensures it stays ahead of competitors. These technologies cater to high-demand sectors like artificial intelligence, 5G, and electric vehicles.
2. Market Expansion: The global semiconductor market is projected to grow at a CAGR of 8.7% from 2025 to 2029, driven by increasing adoption of AI, IoT devices, and autonomous vehicles. TSMC’s diversified client base and technological innovation position it to capture a significant share of this growth.
3. Strategic Partnerships: Collaborations with industry leaders like Apple and NVIDIA ensure a steady pipeline of orders and reinforce TSMC’s role as a strategic supplier for cutting-edge technologies.
4. Geographic Expansion: TSMC’s investments in new facilities in the U.S. and Japan demonstrate its commitment to diversifying manufacturing capabilities and reducing geopolitical risks. These initiatives will likely bolster production capacity and customer trust.

Risks to Consider

While TSMC’s prospects are bright, potential investors should be aware of several risks:

1. Geopolitical Tensions: Taiwan’s geopolitical situation remains a significant risk factor, given the ongoing tensions between China and the U.S. Any escalation could disrupt operations and supply chains.
2. Industry Cyclicality: The semiconductor industry is inherently cyclical, with periods of high demand followed by supply gluts. This could impact TSMC’s revenue and profitability in the short term.
3. Competition: While TSMC holds a technological edge, competitors like Samsung and Intel are investing heavily in advanced semiconductor manufacturing, potentially challenging TSMC’s market share.
4. Valuation Risks: Although TSMC offers good value relative to its growth prospects, its high valuation ratios could expose it to market corrections, particularly in volatile economic conditions.

Despite these risks, TSMC’s strategic initiatives, robust financial performance, and dominant market position make it a resilient investment choice.

Read More: Geron Corporation Stock (GERN) Great Growth and Good Value (Q3 2024 Report)

Conclusion

Taiwan Semiconductor Manufacturing Company is a shining star in the semiconductor industry. Its strong financial performance, characterized by impressive revenue and EPS growth, highlights its operational excellence. The stock’s exceptional price performance and reasonable valuation metrics make it an attractive choice for growth-oriented investors.

With its technological leadership, expanding market opportunities, and strategic partnerships, TSMC is well-positioned to capitalize on future industry growth. While potential risks such as geopolitical tensions and industry cyclicality exist, the company’s resilience and forward-looking strategies mitigate these concerns.

Investors seeking exposure to the semiconductor sector should consider TSMC as a promising candidate. Its combination of strong growth, financial health, and strategic vision makes it a compelling addition to any investment portfolio.