Taiwan Semiconductor Manufacturing Company TSM, the world's largest semiconductor foundry and also known as TSMC, last week delivered another stellar earnings report for the third quarter of 2024. Beating expectations yet again, TSMC continues to solidify its leadership in the advanced chip industry, cementing its position as a long-term winner.
With solid growth across key financial metrics and increasing demand for its cutting-edge technology, the question remains: Should you buy TSM stock?
The answer leans heavily toward yes as Taiwan Semiconductor’s strong fundamentals, strategic growth initiatives and leadership in high-growth sectors make it an attractive investment.
TSMC Delivers Stellar Q3 Performance
In the third quarter of 2024, Taiwan Semiconductor’s revenues hit $23.50 billion, marking a 36% year-over-year increase and a 12.9% rise quarter over quarter. Net income also surged by 51% year over year, reaching $10.06 billion, highlighting the company’s ability to scale its business profitably. Earnings per ADR unit increased 50.4% year over year to $1.94 and surpassed the Zacks Consensus Estimate of $1.74.
These stellar results were driven by robust demand for 3nm and 5nm technologies, which now account for a combined 52% of total wafer revenues. The company’s gross margin improved to 57.8%, reflecting a 350-basis point year-over-year improvement. Its operating margin rose to 47.5% from 41.7% in the year-ago quarter. These figures underscore TSMC’s operational efficiency, even amid rising costs, making it one of the most profitable companies in the semiconductor industry.
So far this year, Taiwan Semiconductor has reported better-than-expected results in all three quarters. Investors have already responded positively, with TSM's stock climbing 93% in 2024 so far, outperforming broader indices such as the S&P 500’s 22.9% and the Zacks Computer & Technology sector’s 26.2%.
YTD Price Return Performance
Image Source: Zacks Investment Research
Despite this impressive rally, TSM stock remains undervalued. Trading at a forward 12-month price-to-earnings multiple of 24.52X, it sits below the sector average of 26.89X, making now an attractive entry point.
Image Source: Zacks Investment Research
TSMC Leads the Semiconductor Revolution
The driving force behind Taiwan Semiconductor’s remarkable performance is its technological leadership. In the reported quarter, its 3nm (nanometer) technology contributed 20% to wafer revenues, while 5nm technology added another 32%. These cutting-edge processes are in high demand, particularly as artificial intelligence (AI) and high-performance computing (HPC) sectors accelerate their need for faster, more efficient chips.
More than 51% of Taiwan Semiconductor’s revenues now come from AI and HPC platforms, both of which are experiencing explosive growth. With AI-related server processors projected to triple in 2024, TSMC is poised to be a major benefactor of this demand wave. As AI and 5G adoptions grow rapidly, Taiwan Semiconductor’s advanced technology puts it miles ahead of competitors like Samsung and Intel, making its stock a compelling long-term investment.
TSM’s Promising Outlook & Robust Guidance
Taiwan Semiconductor’s outlook for the fourth quarter is incredibly optimistic. The company projects revenues between $26.1 billion and $26.9 billion, implying a 35% year-over-year increase at the midpoint. Its gross margins are expected to remain strong at 57% to 59%, supported by higher capacity utilization and continued demand for its 3nm and upcoming 2nm nodes. These advanced technologies ensure that TSMC remains at the forefront of semiconductor innovation.
Moreover, Taiwan Semiconductor continues to deliver robust cash flow, posting $37.62 billion in the first three quarters of 2024. With capital expenditures set to exceed $30 billion for the full year, TSM is strategically investing in future growth, ensuring it can meet the rising demand from AI, 5G and the automotive industry.
The Zacks Consensus Estimate for the current and next year depicts continued growth momentum for Taiwan Semiconductor.
Image Source: Zacks Investment Research
TSMC’s Strong Customer Relationships Fuel Growth
Taiwan Semiconductor's powerful customer base includes some of the biggest names in the semiconductor industry — NVIDIA NVDA, Amazon Web Services, Broadcom AVGO, Intel INTC and Qualcomm, among others. In 2023, 70% of TSMC’s revenues came from just 10 major customers, and this growing relationship with industry leaders bodes well for future top-line growth.
As companies continue to rely on TSM for their most advanced chips, these long-term partnerships ensure a stable and growing revenue base for the semiconductor giant.
Conclusion: Buy TSM Stock Now
Taiwan Semiconductor’s strong third-quarter 2024 results, coupled with its leadership in advanced chip manufacturing, make it an incredibly compelling investment. The company’s robust margins, accelerating demand from high-growth sectors like AI and HPC and strategic long-term investments position Taiwan Semiconductor for sustained success. Moreover, with the stock trading at a discount relative to the sector, now is the perfect time to buy TSM stock and capitalize on its industry dominance and growth potential.
Taiwan Semiconductor has a favorable combination of Zacks Rank #2 (Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or #2, offer the best investment opportunities for investors. Thus, the stock appears to be a compelling investment proposition at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks Names #1 Semiconductor Stock
It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.
With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.
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