Giant semiconductor (chip) manufacturing Taiwan Semiconductor Manufacturing (NYSE: TSM) Recently, he joined the Elite Trillion Dollar Club and has become one of 10 companies with market capitalizations of over 1 trillion dollars (as of July 8th).
The company, also known as TSMC, has experienced a lot of growth in recent years and its momentum is still strong. In fact, it’s one of mine Favorite stock nowand I plan to hold it for a long time. Here are 10 reasons.
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If that’s coming Semiconductor manufacturingthere’s TSMC and everyone else. TSMC has a market share of about 70% of the semiconductor foundry market, far surpassing its next closest competitor.
There is no clear path for competitors to approach TSMC’s market share at any time in the near future.
TSMC does not sell products directly to consumers, but its chips are found in many of the electronic devices they use every day. TSMC customers include apple (smartphones, tablets, etc.), nvidia (gpus), Tesla (Automatic driving technology), AMD (CPU), and dozens of other high-tech heavyweights.
In the first quarter (Q1), TSMC revenue was $25.5 billion, an increase of 35% year-on-year (Yoy). Its net profit (in local currency) rose 60% year-on-year, continuing its impressive financial performance over the past five years.
TSMC customers usually help to sign long-term contracts and keep revenues predictable too.
TSMC creates most of the high-power chips that are essential to the AI ecosystem. Smartphones were previously the biggest segment of TSMC’s business, but new demand for AI has changed the landscape. Management estimates that revenue growth from AI accelerators will have a combined annual growth rate (CAGR) in the 40% medium-term range until 2029.
Development of a semiconductor manufacturing plant is not easy. As a result, some of the world’s richest and technologically advanced companies have yet to build their own and continue to rely on TSMC.
Many investment capital, complex technologies, and many years of process improvements are required. This allows TSMC to keep its competitors far away.
One of the concerns about TSMC’s business is the geopolitical tensions between Taiwan and China. In light of this risk, the company has begun expanding its business outside of Taiwan.
TSMC currently has or has manufacturing plants in Taiwan, the US, Germany and Japan.
Although TSMC does not consider it to be a dividend stock, it offers dividends that complement the recent stock price growth. The dividend yield was approximately 1.17% (as of July 8th). S&P 500 average. However, the average dividend yield over the past three years is higher than the S&P 500.
A modest dividend can still contribute to long-term total revenue.
Semiconductors are classified by manufacturing process nodes measured in nanometers (nm), such as 7nm, 5nm, 3nm, and the upcoming 2nm. The smaller the node, the stronger and more sophisticated the semiconductor.
TSMC effectively monopolizes the manufacturing and sales of the most advanced semiconductors in the world. Other companies cannot match the efficiency of TSMCs and the scale that it can build them up.
TSMC has consistently invested in growing its business, but this spending has been accumulated as demand for AI chips grows. In 2024, TSMC’s capital expenditure totaled just over $30 billion. This year, the number is expected to increase from $38 billion to $42 billion.
TSMC noted that higher capital expenditures are directly correlated with its growth opportunities. This should be music for investors’ ears.
When you’ve been investing in a company for a long time, you want something that shows it can stand the test of time. Since 1987, TSMC has navigated various economic cycles, the introduction of new technologies, and geopolitical tensions.
Between each step, it is adjusted and positioned for long-term growth, and there is little reason to believe it will not continue.
Consider this before purchasing inventory at Taiwan Semiconductor Manufacturing.
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Stephon Walters We have positions in semiconductor manufacturing for Apple and Taiwan. Motley Fools introduces and recommends Advanced Micro Devices, Apple, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. To Motley’s fool Disclosure Policy.
