TSM-Taiwan Semiconductor Mfg. Co. Ltd


Taiwan Semiconductor Manufacturing Company, Ltd. (NYSE: TSM) is a global semiconductor industry leader known for its highly advanced and efficient chip manufacturing processes. Established in 1987, TSMC revolutionized the industry by being the first to offer dedicated semiconductor foundry services. The company went public in 1994, setting a precedent for semiconductor manufacturing and innovation. As of 2023, TSMC deployed 288 distinct process technologies and manufactured 11,895 products for 528 customers by providing the broadest range of advanced, specialty, and advanced packaging technology services.

TSMC’s semiconductor chips are in various electronic devices, from smartphones to high-performance computing systems, automotive applications, digital infrastructure, and consumer electronics. The devices underscore the company’s relevance in today’s tech-driven society, particularly amidst the prominence of tech stocks and semiconductor technology. With the surge of interest in artificial intelligence (AI), TSMC is assured of significant advancements.

Cutting Edge Technology: With a global operational scope, the company caters to leading fabless semiconductor firms as a trusted foundry, producing chips featuring cutting-edge technologies spanning from 2 microns to 3 nanometers. Noteworthy advancements include pioneering capabilities in 7-nanometer and 5-nanometer output and the successful commercialization of EUV Lithography. These technological feats emphasize TSMC’s commitment to reshaping the semiconductor landscape through relentless innovation, consistently pushing boundaries to remain at the forefront of the industry.

Employment: As of 2024, TSMC employs around 73,090 people worldwide, with a significant portion of its workforce based in Taiwan. As TSMC’s senior vice president of human resources, Lora Ho, stated, this number is expected to increase to 100,000 in a few years. 

Manufacturing and Sales by Geography: TSMC’s chips are pivotal in various industries worldwide, including consumer electronics, automotive, and telecommunications. North America accounted for 66% of total net revenue, while revenue from China, Asia Pacific, EMEA (Europe, Middle East, and Africa), and Japan accounted for 12%, 8%, 7%, and 7% of total net revenue respectively. 

Sales By Product: 15% of the 3nm nodes, 35% of the 5nm nodes, 17% of the 7nm nodes, 8% of the 16nm nodes, 7% of the 28nm nodes, 4% of the 40/45 nm nodes, 5% of the 65nm nodes, 1% of the 90nm nodes, 3% of the 0.11/0.1um nodes, 4% of the 0.15/0.18um nodes and 1% of the 0.25um and above nodes. 

  •  Market Cap-728.982B 
  •  Enterprise Value-705.78B
  •  52-Week Range-81.21-158.40
  • Forward Dividend and Yield-1.47%
  •  Free Cash Flow Yield (Dec 30, 2023)- 1.4% 
  • Return on Equity- 26% 
  • Trailing P/E-27.39 
  • Forward P/E-22.47 
  • Diluted EPS-5.09 


CEO: The CEO of TSMC is Dr. C.C. Wei. Alongside the chairman, Dr. Wiu has an extensive background in the semiconductor industry, combining over six decades of experience in various technical and leadership roles within TSMC. Dr. C.C Wei has been with TSMC as the CEO since 2017, making TSMC a beast in the business, overseeing crucial operations like the advancements of the 5nm nodes and beyond and the expansion into other countries. They have prioritized research over everything, fostering a workplace like no other in the semiconductor industry, always, no matter what, and being suitably ahead of the game. Through their time as CEO and Chairman, the company has reflected beautifully with a 2.14x in revenue, from 32.91B to 70.35B, with the stock reciprocating those values with a bump up from $40 a share to $140 a share, more than 200% gains. 

Shareholders: TSMC’s shareholder base predominantly comprises institutional investors, a testament to the confidence in the company’s leadership and growth potential. As of March 2024, the top 3 institutional shareholders, each holding less than 1% stake in the company, are Sanders Capital LLC, JP Morgan Chase and Company, and Capital World Investors. Among them, Sanders Capital LLC holds the most significant stake at 0.86%, equivalent to 44.53 million shares. 


The Board: The Board consists of 10 distinguished members with outreach to multiple diverse communities to create an environment of diverse knowledge, personal perspectives, and solid business judgment. 6 of those ten members are independent directors, which reaffirms TSMC’s goal of at least 50% of board members to be independent.


Industry Analysis:

Industry Situation: The semiconductor industry awaits a progressive year ahead, poised to have a 16.8% jump in revenue. 2024 would be a crucial rebound year from its double-digit drop in 2023, one of seven downturns the industry has faced since 1990 for the semiconductor sector. A primary contributing reason for the decline in 2023 was the memory chip market, which fell an astounding 31% (40$ billion). If that figure is excluded, the industry dropped a less eye-rolling number of 3% in 2023. After 2024, the total revenue is predicted to shoot up 15.5% to 721 billion dollars in 2025. 


AI Factor: The industry’s growth is primarily due to the increasing popularity of generative AI, which is the next big thing in chip supply. These chips are expected to enter the market firmly in 2024, with sales expected to exceed $50 billion, accounting for 8% of the total value of chips sold that year. Some predict that by 2027, sales of AI chips will reach $400 billion. Additionally, the total gross revenue is forecast to continue at a CAGR of 8.70% until 2030, when the revenue should reach $900 billion.


Competitive Positioning

Moat Analysis: Wide-Moat 

Dominance: First, TSMC is one of the industry juggernauts with a whopping $700 billion market capitalization and has been a massive part of this growing industry for past years. Within the exact foundry revenue, TSMC is leaps ahead of the competition, with 62% of total revenue coming from TSMC production. The second behind TSMC is Samsung, at 11%, which exemplifies TSMC’s domination in their respective sector.


Technological Leadership: With its state-of-the-art semiconductor process technology and advanced manufacturing processes, TSMC possesses a significant critical advantage. It can utilize its vast knowledge and continuous innovations as a lucrative impediment to potential competitors, whose entry is thus deterred. This way, the company is always on top in its specific industry.


Scale and Efficiency: TSMC’s size of operations allows it to achieve economies of scale, making its semiconductors more affordable than its competitors’. Such cost leadership increases its competitiveness and effectively diminishes the chances of minor competitors.


Intellectual Property Portfolio: This company owns a solid intellectual property portfolio, including patents and some proprietary technologies that hinder the copy process and further reinforce its technical leadership. They have 52,000 patents, ranking No. 3 for two consecutive years in the USA among patent applicants and No.1 in Taiwan. This intellectual property fuels the threat of new entrants in business.


Customer Relationships and Long-Term Partnerships: TSMC has created a long-term business with big technology chains such as Apple, Nvidia, and Qualcomm. Such reliable partnerships are based on trust, reliability, and TSMC’s capability of consistently providing high-quality semiconductor products, making it difficult for customers to turn to competitors. For those numerous companies listed, having TSMC at its side is a massive luxury, saving billions for not having to open up their manufacturing spots. The fact is that Nvidia would only have become the 3rd most valuable company with TSMC’s chips; TSMC is almost indispensable for the global tech industry. 


Regulatory Barriers: Semiconductor (chip) manufacturers are subject to strict environmental regulations, which require manufacturers to meet high standards of compliance and environment. Therefore, TSMC’s compliance with regulatory requirements and its fluency in the operating environment go ahead of competitors in preventing potential competitors from allocating the same resources and penetrating the given market.


Porter’s Five Forces:

Threat of New Entrants: Low (3 out of 5) – The semiconductor industry needs substantial initial investment, cutting-edge technology, and experienced human resources, making it a playing field for only a few players, owing to its capital intensity. The injurious scale of TSMC’s operations. TSMC’s technological authority. TSMC’s long and strong relationships with significant clients provide formidable barriers to entry for newcomers. Besides that, the increasing complexity of semiconductor apparatus manufacturing processes and regulatory requirements act as a constraint for the entry of new players.


Bargaining Power of Suppliers: Moderate (2 out of 5) – TSMC commands suppliers for various items, machines, and technologies needed in semiconductor manufacturing. Some suppliers might be granted bargaining power for every provision they specialize in, and the scale of operations and network of suppliers at TSMC work to counter the threat. Moreover, its scale and long-term relationships with the major suppliers allow it access to preferential terms and pricing.


Bargaining Power of Buyers: Moderate (2 out of 5) – Customers of TSMC, which include huge companies like Apple, Nvidia, and Qualcomm, have a strong voice when doing deals because of the volume of goods they buy and also because they depend on suitable quality semiconductors. As opposed to this, despite the tech leadership, quality management, and trusted reliability, it has the upper hand in the negotiation process. Besides, switching costs for the buyers can also be high, given the difficulty in semiconductor design – specifically, in transferring the production to a different manufacturer.


The threat of Substitutes: Low to Moderate (2 out of 5) – However, the gradual development of internal production or production by other companies can be considered an alternative way of the unique niche for TSMC, which could match the expertise, specialization, and product quality it offers. Another reason for barriers in this industry is the increasing complexity and miniaturization of semiconductor chips that are impossible to substitute in the high technology field.


Competitive Rivalry: Moderate (3 out of 5) – A competitive environment exists not only among various foundries, such as TSMC and Samsung Foundry, but also Intel Foundry Services and, recently, a few semiconductor companies that have diversified their portfolio and provide vertical integration services. Yet, with its leadership in making novel technologies, large enough to profit from economies of scale, strong customer relations, and a broad intellectual property portfolio, TSMC has much to dent the competition. While competition does exist, TSMC is currently in a leading position augmented by its constant innovation and the ability to continue developing new products for its clients.


Financial Analysis: 

Profitability: In the context of a market that shows a lot of resilience and leadership, the company keeps registering consistent and high margins. TSMC’s gross profit margins have stayed around 50-60% over the last five years, showing a significant trend recently. In addition, TSMC has increased operating profits, exceeding 40% in the previous few quarters. Q4 2023 being the last available information, TSMC demonstrates a 48% Return on Equity(ROE) and a 33% Return on Invested Capital(ROIC), which are remarkable. This is all while holding a 1.287% interest rate on debt. Borrowing for less than their ROIC significantly showcases the company’s capital structure, increased profitability, and enhanced shareholder value.  


Growth: In the face of shifting market dynamics, TSMC forges ahead and never slows down leading-edge tech innovation and strategic investments. For at least the past ten years, the firm has expanded its revenue by almost 9% per year with an average growth rate of about 9%. Demands for increasingly complex semiconductor solutions have been the predominant drivers of TSMC’s growth, and one of the significant factors behind this is the emergence of 5G, AI, and high-performance computing.


Balance Sheet: TSMC’s balance sheets are still healthy; these reflect the company’s robust financial status and stability. The assets amount to $333 billion, and the liabilities total $191 billion. The company has a solid financial position due to the favorable asset/liability ratio. With TSMC’s enormous net cash reserves of $48.94 billion, there is a vast sum to deal with uncertainties of economic conditions. In addition, TSMC is forecast to make over $62 billion in unleveraged free cash flow for 2024, a testament to its outstanding ability to generate cash and efficient financial direction when doing business in complex business surroundings. 


Investment Thesis:

After thoroughly analyzing Taiwan Semiconductor Manufacturing Company, Ltd. (TSMC) stock, we conclude with a conservative BUY rating and set a Target Price of $175.54. The following fundamental critical insights underpin this recommendation.


Innovative Manufacturing Leadership In A Booming Industry: TSMC’s pioneering role in advancing semiconductor technology, particularly in the ultra-fine 5nm and forthcoming 3nm processes, positions it at the forefront of the industry. This technological edge allows TSMC to secure contracts with leading global tech firms, underlining its unique business model. The company’s strategy to expand globally, including significant investments in the United States, reflects its ambition to cater to the burgeoning demand for semiconductors, underpinning its growth trajectory. Also, with the rise of AI demand and poised growth within the semiconductor industry for the next couple of years, it seems fit to assume TSMC will capitalize on that. 


Strategic Partnerships and Market Dominance: TSMC’s collaborations with key industry players and its dominant market share in the semiconductor foundry sector underscore its robust position. The company’s focus on research and development ensures sustained innovation, securing its status as the go-to manufacturer for high-performance chips.


Historically Stable Company: TSMC stands as a beacon of stability within the semiconductor industry, fortified by a legacy of achievements. Since 1987, TSMC has spearheaded technological advancements that have reshaped the global semiconductor landscape. Notably, the company pioneered the concept of dedicated semiconductor foundries, revolutionizing the manufacturing process and enabling unparalleled levels of efficiency and customization for clients. It also consistently ranked among the world’s leading semiconductor manufacturers in terms of environmental stewardship and social impact.


Mark Up In Price: Recently, TSMC decided to mark up the price of their products by 8.7%, following their underperformance against significant companies like AMD and Nvidia, which seem to be outpacing TSMC’s revenue. Now that they have that price increase, the ASP of each 2nm would reach upwards of $30,000, and the 3nm would get around $22,000. The fact is that TSMC, AMD, and Nvidia are more or less in correspondence with each other due to TSMC manufacturing the chips they use, so it seems imminent that they will start to perform at that high level. Notably, 3nm was already seen to have had a significant bump in revenue from Q3 to Q4, demonstrating the newfound demand for those chips. With this trajectory on 3nm, it seems guaranteed to also happen with 2nm, especially with an increase in demand for new cutting-edge technology on AIs.

Stock Valuation:

When doing a deeper dive into the particular stock, it is on a clear path and trajectory to new heights for the company. The past quarter came in hot with much to say for its prosperous following years. Even though 2023 wasn’t the most jawing year for TSMC, quarter 4 brought some insight into how they could backfire the following year. Already showcasing the recovery in quarter 4, bringing up the revenue by 14% year over year, compared to quarter 3. These earnings came with a press conference, CEO C.C Wei stating how, “Despite a challenging 2023, our revenue remains well on track to grow between 15% and 20% CAGR over the next several years in U.S. dollar terms, which is the target we communicated back in January 2022 investor conference.” This would outpace the S&P 500 CAGR at 12.02% over ten years, proving another worthwhile investment. 


It’s not just all talk by the CEO; there is proof to this matter, with the company having and most likely continuing a CAGR of 15-20% because, in the past five years, the average for the company has been 15.95% with the 10-year being 13.73%. On top of that, the 5-year EBIT growth is 18.91%, showcasing superb above-and-beyond growth. This adds to the fact that the company’s profitability has been steadily increasing through the years, telling a tale that it is efficiently and effectively managing its top line’s bottom line.


Now, with all these facts of a more than positive future for the company, let’s investigate the potential undervaluation of the company in the present and our eventual price target reasoning. So, to begin, it’s a massive sign that the P/E ratio of the company is at 24.3x, which may seem intimidating and weary at first. However, when looking at the industry in which it resides, the industry average is 30.2x. The P/E ratio points out one of the signs of undervaluation in the company. Additionally, industry-wise, TSMC’s P/E number against the fair P/E ratio at 33.7x is miles below it, suggesting massive room for growth.


Growth in the stock price doesn’t just happen, so this leads to the point of the next projected years of Net Income to join TSMC, with a presumed bump up of 19.1% in the 2024 fiscal year, followed by 23.4% in 2025, and a 16.1% bump up in 2026. This also, in turn, drags the projected dividends to a 57.5% increase in 2024, a 52.9% increase in 2025, and a 38.5% increase in 2026. This proposes that TSMC is growing continuously, with a higher market value. 


Now, with prosperity seeming inevitable for the company and growth being contingent for many years and predictable, let’s calculate an appropriate value for the stock in the coming year using a Dividend Discount Model Multistage. The DDM model was chosen because the dividends on TSMC grow at a constant rate continuously, are well established, and consistently pay dividends to stockholders with steady cash flows, making it unlikely to get cut at an unreasonable rate. With that out the way, the DDM multistage model advocated that the stock will have a low of 149.36 and a high of 212.96, coming in with a fair value of 175.54. To give it reasonability, we chose 175.54 as our price target to meet in the middle and to take into account growth as a significant contributor. This was all assuming the perpetuity growth rate is at a discounted constant rate of 6% and a 10.3% constant cost of capital stays within the company, all with a steady dividend growth rate to back up the calculations. These calculations were computed using historical data and took an average of 5 years to factor it in; for example, we used the CAGR and the Terminal, Discrete Dividends, all supporting the Fair Value Calculations.


Future- Sustaining and Expanding Growth

Technological Advancements: With all that continuous growth needed to reflect the stock price we assessed to be 175$ shortly, the company is still required to develop and become something greater fundamentally and advance its product lines. First off, TSMC, hopping straight onto AI advancements, unveiled its device, the 3DBlox2.0 open standard, and highlighted critical achievements in its Open Innovation Platform® (OIP) 3DFabric Alliance at the 2023 OIP Ecosystem Forum. The 3Dblox 2.0 introduces 3D IC design capabilities, enhancing design efficiency. At the same time, the 3DFabric Alliance aims to integrate memory, substrate, testing, manufacturing, and packaging, providing customers with advanced 3D silicon stacking and packaging technologies for improved performance and power efficiency in AI, high-performance computing (HPC), and mobile applications. TSMC already has hardworking and ready fabs that design, test, and assemble silicon dies, including the 3D stacked die, which gets processed into packaged devices. 


To add on top of the new devices, the company is intensifying its focus on technologies like RF and 3D intelligent sensors, which hope to aim at 5G and innovative IoT applications. The R&D team at TSMC is always up for the challenge, focusing on nodes beyond 2nm, new memories, low-R interconnect, and areas such as 3D transistors, creating a solid foundation for next-generation technological advancements. TSMC can only make All the efforts with its core corporate research division, which focuses on pioneering materials, processes, devices, and memories for future adoption. They also collaborate with external research organizations that aim to gain early insights into cost-effective technologies and manufacturing solutions. 


World Wide Presence: With new technological improvements every year, there will be more demands. With that in mind, TSMC met those demands with several new factory locations. The first is a new chip fabrication plant in Japan that opened in February 2024. It is Japan’s first chip fabrication plant, a semiconductor giant attempting to diversify its supply chains away from Taiwan. A second plant is also in the offing, with construction set to begin in Japan by the end of 2024. The total cost for both plants is a whopping 20 billion in the Kumamoto region in southwestern Japan. 


Importance of Movement: This move is more prominent than what is said on paper because Japan advocates for this semiconductor operation, providing TSMC with over 7 billion dollars in government funding. This is a play not just for TSMC but for Japan, seeking to revive its chip manufacturing status to what it was a long time ago. It is also a great way to avoid and dodge China’s continuous pressure they emit on Taiwan by reaffirming their invasion again and again, which, if it were to happen, could deeply hurt TSMC’s production and operation in their homeland. Even though TSMC seems to keep delaying their Arizona chip manufacturing spot that’s now set to be done by 2027-2028, it’s still a good sign, providing sound reasoning for more growth within the company. 


Investment Risks:

As we move forward from all the good about the company, there are always some inherent risks, and not everything is sunshine and rainbows, even considering massive corporations like TSMC. Some risks include but are not limited to, supply chain disruptions coupled with regulatory and geopolitical tensions/risks and reliance on big customers.


Supply Chain Disruptions: First are the supply chain disruptions, which come with natural disasters such as typhoons, earthquakes, geopolitical tensions, and unexpected events like the COVID-19 pandemic. These all impede and delay production, increasing costs for work and leading to a shortage of semiconductor chips. TSMC has covered most of this by having built a copious number of factories all over the world to ensure that only some things would be able to get taken entirely out unless a critical facility were to be affected by these unfortunate disruptions. If that specific event were to be carried out, it could lead to massive implications, such as failing to meet customer demand and promptly fulfilling orders. 


Geopolitical Tensions: Among all those supply chain disruptions, the prominent focal point investors tend to see in TSMC is the foreseeable warfare between China and Taiwan that will have cataclysmic effects. These tensions contribute to trade disputes, territorial disputes, and diplomatic conflicts, all of which affect the stability of the entire region of Taiwan and block the flow of goods and services. They combat all these disruptions with supplier diversification, inventory management, collaboration and communication, technological investments, and strategic risk assessment and scenario planning. 


Customer Concentration: The final risk that I evaluated is the customer concentration that the company is a part of. TSMC, as mentioned earlier, is a foundry semiconductor company, meaning it produces and manufactures the chips that are later designed and sold by fabless companies. TSMC services top market dogs such as Apple, AMD, and Nvidia. This, in turn, causes a significant issue, which is the bottleneck that TSMC is in; most of its revenue depends on those previously mentioned vital customers. If they were to cut off TSMC and outsource chips from another better foundry, then TSMC would have a significant dent in its revenue and overall company status. It’s also an excellent thing for TSMC to be heavily tied to these massive corporations because when they see growth, TSMC seems to come up with it due to increased demand for chips.  


ESG Consideration:

The “TSMC ESG Policy,” set by TSMC’s founder, Dr.Morris Chang, has set the standard for TSMC’s Excellence in the ESG realm and is guided to help with sustainability and other issues. In addition, the “ESG Matrix” to the right is essentially a checklist of what the company should do to further improve its standpoint in ESG.


  • Conservation: TSMC reduces its carbon footprint and minimizes environmental impact in every way possible. It develops goals and ideas to create energy-efficient manufacturing processes, incorporates countless renewable energy resources, and implements waste reduction strategies. 
  • Specific Goals and Achievements: Although 0 overseas sites achieved zero emissions in Scope 1 and 2, they built Taiwan’s first privately-operated water reclamation plant in 2022, which recycles industrial wastewater produced in the Southern Taiwan Science Park. Also, they have a rate of reduction in volatile organic gas at 98.9%, on top of their 96% waste recycling rate achieved with only <1 % of waste sent to landfills for 13 consecutive years. 


  • Standards: TSMC upholds rigorous labor standards, prioritizing employee safety, health, and well-being. This comes with a whopping 239.5B worth of total compensation and welfare for TSMC employees worldwide, a 45% increase from 2021. 
  • Social Engagement: TSMC actively engages with local communities, supporting education, healthcare, and social welfare initiatives. They invest 1.779 Billion dollars in social engagement, with 2.291 million beneficiaries of those programs. 2.518 million people received employee training, and >6,800 students worldwide participated in TSMC’s diverse industry-academia cooperation programs, showcasing TSMC’s compassion and commitment to the people.


  • Abundance of Opportunities: TSMC prioritizes social responsibility by fostering a diverse and inclusive workplace culture, ensuring equal opportunities for all employees regardless of background or identity. This is especially true of its board of directors, which comprises experienced professionals with diverse expertise, providing effective oversight and strategic guidance. 
  • Ethical Role Model: TSMC maintains a foolproof corporate governance framework characterized by transparency, accountability, and ethical business practices. They uphold high standards of integrity and compliance with regulatory requirements, protecting stakeholders’ interests and promoting long-term sustainability. 


Rewards: In 2022, TSMC was rewarded with the Dow Jones Sustainability Indices for the 22nd consecutive year, AAA Ratings in MSCI ESG Research, and competent in all the other MSCI ESG categories, rated “Prime” By ISS ESG, and the list goes on.



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