Bull Of The Day: Taiwan Semiconductor Manufacturer Company (TSM)

Taiwan Semiconductor Manufacturer Company (TSM) is leading the fourth revolution from behind the scenes. TSMC is the largest semiconductor manufacturer in the world (54% share) with a market positioning that is multiples ahead of its competitors.

TSMC just released its Q3 earnings last week, illustrating another strong quarter with double-digit top and bottom-line growth. The company is making significant investments in the next wave of wireless networks, 5G. They are working closely with there key customer, Apple, to build out this technology for the anticipated demand surge in 2020.

This stock has consistently driven returns for investors, and I would consider them one of the safest tech growth investments in the industry. Analysts have become increasingly optimistic about these shares as the semiconductor space is resurged back to life, raising estimates and pushing TSM into a Zacks Rank #1 (Strong Buy).

Taiwan Semiconductor Manufacturing Company Ltd. Price and Consensus

Taiwan Semiconductor Manufacturing Company Ltd. price-consensus-chart | Taiwan Semiconductor Manufacturing Company Ltd. Quote

Building for The Future

At the forefront of this firm’s product offering is innovation and the aptitude to be the backbone of the 4th industrial revolution. TSMC creates 85% of the world’s semiconductor prototypes. Its Open Innovation Platform supports start-ups and enterprises alike by reducing design barriers are improving first-time integrated circuit (IC) success.

TSMC has seen more semiconductors than any other company in the world. They are not only working at the largest scale but also with the most state-of-the-art technology to improve a firm’s “design time, time-to-volume, time-to-market, and ultimately, time-to-revenue,” according to TSMC IR site.

TSMC’s customers include the most influencial semiconductor innovators and tech firms in the world. Companies like Intel (INTC), Nvidia (NVDA), Broadcom (NASDAQ:AVGO) (AVGO), Qualcomm (QCOM), and even Apple (AAPL). The most trusted tech names in the world turn to the most trusted semiconductor foundry on the globe for their manufacturing and innovative needs.

More and more tech companies are turning to foundries for their IC production needs as the technology required to compete becomes impossible to produce in-house. TSMC provides the greatest technology and scale that would improve a business’s IC cost and capabilities. Samsung (KS:005930) and TSMC have recently teamed up in the development of 5-nanometer transistors, which would give it the ability to put 30 billion transistors onto a chip the size of your fingernail.

This company has an enormous amount of growth ahead of it. Its realized economies of scale have rippled through the company’s financials, positioning it to reap the benefits from the next wave of hyperscaling, AI development as well as the implementation of 5G technology.

Financial Profile

TSMC has one of the most robust balance sheets in the industry, with almost no debt in the books and strong free-cash-flows to keep the business churning with internal capital. This firm is sporting the highest credit rating in the industry (S&P AA-, Moody’s: Aa3), according to TSMC’s IR page.

TSMC’s growth has slowed down with the cyclical deceleration of the semiconductor industry, but the company is expected to achieve strong single-digit long-term growth. This enterprise has an exceptional margin profile with net margins exceeding 30%, demonstrating operational excellence.

This stock has traded up over 35% so far this year and is yielding investors 3.2%, which is unusually high for a tech firm with a healthy growth outlook. Despite TSM trading right off of all-time highs, I would be comfortable with a position in this company as a long-term investment, especially considering its cushy dividend.

Take Away

TSMC reflects the semiconductor space and will be the foundation of the next wave of technological innovation. Integrated circuits are a part of every piece of technology today, from a simple electronic toothbrush to an electric vehicle. TSMC is a driving force in the 4th industrial revolution, and it might be time to take ownership of the future.

Short-term volatility may affect short-term gains, but as long-term play, TSM is a solid investment.

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