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Could Taiwan Semiconductor Manufacturing Company Limited (TSM) Grow 10x Over the Next 3 Years?
We recently compiled a list of the 8 Stocks That Could 10X Over the Next 3 Years.In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against the other stocks that could 10x over the next 3 years.
The New Presidency and The Future of Big Tech
The new president of the United States is set to take office in January 2025, and investors are concerned about how the new policies will impact big tech. On November 14, Arvind Krishna, Chairman and CEO of IBM, appeared in an interview on Yahoo Finance to share his expectations from big tech as the new presidency takes over the White House. Krishna shares that he expects more innovation and less regulation in the tech sector, with certain "guardrails." He adds that the business community is particularly excited and expects strong tailwinds to the US economy as we enter 2025.
In the same interview, William Kerwin, an analyst at Morningstar Technology, appeared to discuss the potential future of big tech under the new presidency and how the new policies could impact companies, particularly those trading in China. Kerwin emphasizes that a lot is yet to unfold but the most crucial element is tariffs. With a proposed 60% tariff on Chinese imports, companies reliant on the region will face severe headwinds and may have to seek trade relationships with other regions like India and Southeast Asia. However, he does add that high exposure to China does not necessarily equate to "high investment risk."
Speaking of mergers and acquisitions and antitrust regulations, Kerwin is rather optimistic. He expects more merger and acquisition deals to come through over the next four years. In addition to that, he expresses that anti-trust regulations are less likely to be focused on a specific company or a product, and more on the platforms and their respective use cases offered by big tech. Kerwin also adds that he does not expect significant breakups but foresees regulations to be enforced that "erode" the competitive advantages the big tech companies enjoy at the moment.
Kerwin believes that companies well exposed to artificial intelligence are currently overvalued. However, he reiterates that this "does not mean" that there are not any opportunities within the sector. He also shares a couple of names in the chip equipment and semiconductor sectors that are well-positioned at the moment. He suggests that while these sectors are pressed over cyclicality worries and the fear of AI reaching maturity, some companies hold promise and are valuable.
Since investors are excited to see the business opportunities coming over the next four years, there are certain stocks, especially in the realm of technology, most likely to gain significant momentum. That said, let's take a look at the 8 stocks that could 10x over the next 3 years.
Our Methodology
To come up with the 8 stocks that could 10x over the next 3 years, we sifted through multiple similar rankings and compiled an initial list of 20 stocks. We then ranked the top 8 based on their upside potential, as of November 18, 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Is TSM Stock a Good Long Term Buy?
A close-up of a complex network of integrated circuits used in logic semiconductors.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Analyst Upside as of November 18, 2024: 29%
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the stocks that could 10x over the next three years. The semiconductor company makes chips for technology giants like NVIDIA and AMD.
In the third quarter of 2024, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) logged revenue worth $23.7 billion (NT$759.69 billion) and net income worth $10.13 billion (NT$325.26 billion), up by 39% and 54.2% year-over-year, respectively. TSM attributes its revenue growth to the increasing demand for artificial intelligence and expects its four-year revenue to increase by nearly 30%.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is expanding its presence across the world. The company recently formed a joint venture with major partners in Germany and expanded its partnership with Amkor to facilitate advanced packaging in Arizona, fueling the semiconductor ecosystem in the region.
In addition to that, the company expects to spend $32 billion to $40 billion in capital expenditures in 2024, allocated to advanced process technologies, specialty technologies, and advanced packaging and testing. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) expects revenue from AI chips to increase at a compound annual growth rate (CAGR) of 50% by 2027.
Baron Global Advantage Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q3 2024 investor letter:
“We established a small position in Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM). Morris Chang founded TSMC in 1987, as the world’s first dedicated semiconductor foundry. Until then, semiconductor chips were always designed and manufactured by the same company. TSMC introduced a groundbreaking new business model, in which it acted purely as a contract manufacturer, which proved to be highly successful. TSMC maintained a focus on improving its manufacturing process technology and enabled the emergence of innovative fabless design companies, including NVIDIA, Apple, and Qualcomm, who became TSMC’s key customers. Today, TSMC has a more than 60% share of the total semiconductor foundry market and over 90% share in leading-edge manufacturing. TSMC enjoys high barriers to entry given the ever-increasing cost and technological complexity of semiconductor manufacturing while benefiting from economies of scope as once leading-edge manufacturing becomes lagging edge on fully depreciated equipment. TSMC also benefits from scale– higher profits lead to higher R&D and capex investments, allowing for further technological differentiation, resulting in more profits. We believe TSMC will sustain strong double-digit earnings growth for years to come, driven by continued market share gains, strong pricing power, and structural growth in AI demand. According to C.C. Wei, TSMC’s CEO, “almost all the AI innovators are working with TSMC to address the insatiable AI-related demand.”6 Management forecasts that revenue from server AI chips, such as GPUs and other AI accelerators, will grow at a 50% CAGR from 2022 to 2028 and account for more than 20% of TSMC’s revenue by 2028. We except further long-term upside from the eventual proliferation of edge AI devices, including AI smartphones and AI PCs, which will require significantly more computing power and drive even stronger demand for TSMC’s leading-edge technology.”
Overall TSM ranks 5th on our list of the stocks that could 10x over the next 3 years. While we acknowledge the potential of TSM as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
