Can Taiwan Semiconductor Afford Its $30 Billion in Long-Term Debt?

Taiwan Semiconductor Manufacturing (NYSE: TSM) is one of the most important companies in the world. In fact, according to some, it's the most important company.

TSMC, as it's also known, is the world's largest contract semiconductor manufacturer. It's the company that many of the world's biggest chip users like Apple, Nvidia, Broadcom, and Advanced Micro Devices rely on to manufacture their chips.

As a result, TSMC is one of the most valuable companies in the world, and like most manufacturers, it has billions of dollars invested in its foundries, or the plants that make those chips. It finished the first quarter with $95.4 billion in property, plant, and equipment, which represents the book value of its factories rather than the market value, which is likely higher.

However, it also funds its growth through debt, and now has $30 billion in debt on its balance sheet. Is this a serious risk for TSMC? Let's take a closer look at what investors should know.

Fabrication of a semiconductor.

Image source: TSMC.

TSMC's debt burden

At $30 billion, TSMC's debt balance seems proportional to the size of its business. The company generated $71.5 billion in revenue in its last four quarters and $30 billion in operating income, showing the company has wide operating margins and pricing power, a result of its competitive advantages and leading industry position in semiconductor manufacturing.

Taking a look at Taiwan Semi's assets, its balance sheet also looks strong. In fact, the company has $53 billion in cash and equivalents and another $7 billion in short-term investments. It could easily pay off its debt if it needed to, and it collects net interest income instead of paying interest expense like most companies.

So while TSMC competes in a cyclical industry that occasionally crashes, the company can easily afford its $30 billion in debt.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

See the 10 stocks

*Stock Advisor returns as of April 22, 2024

Jeremy Bowman has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.