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Can TSMC Stock (NYSE: TSM ) Repeat Nvidia’s Performance?

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TSMC (NYSE:TSM), the world’s largest chipmaker, recently reported impressive revenue figures for March. It is worth noting that NVIDIA (NASDAQ: NVDA) grew by 242.5% last year and relied on TSM for chip manufacturing. However, TSM’s share price performance (up 71.5% over the same period; see chart below for comparison) has been relatively lackluster. This begs the question: Can TSM replicate NVDA’s stellar performance? The answer is probably “yes”.

With the continued boom in artificial intelligence, rising U.S. funding, and attractive valuations, TSM looks like a compelling buying opportunity right now.

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Pre-profit data shows positive outlook for future profits

On April 10, TSM announced impressive March revenue data, setting the highest month-on-month growth rate since November 2022, with a year-on-year increase of 34.3%, totaling NT$195.2 billion (approximately US$6.1 billion). In addition, first-quarter revenue is expected to increase by 16.5% year-on-year to NT$592.6 billion (approximately US$18.4 billion).

Notably, TSM expects revenue to grow 20% in fiscal 2024, driven by strong demand for its latest nanochips amid the surge in artificial intelligence. Additionally, the company reiterated in January 2024 that its artificial intelligence revenue is growing rapidly at about 50% annually.This reaffirmation is particularly reassuring after reporting revenue declines in 2023.

TSM manufactures and supplies chips to Nvidia, Advanced Micro Devices (NASDAQ:AMD) and Apple (NASDAQ:AAPL). Before releasing its first-quarter earnings on April 18, let’s take a look at TSM’s future.

The artificial intelligence revolution will stimulate the growth of TSM

The artificial intelligence revolution is sweeping the world. I have no doubt that its growth trajectory is durable. The artificial intelligence industry is still in its infancy and is expected to expand significantly across different industries and applications.according to Next step strategy consultationThe industry is expected to grow into a behemoth worth $1.85 trillion by 2030, and will be worth approximately $208 billion in 2023.

TSM’s customers rely heavily on the company to produce the wafers they design. The craze for all AI needs has triggered a huge demand for AI chips.

To fuel the rapid growth of artificial intelligence, TSM’s manufacturing operations received another boost when the company received approval for direct federal funding worth $11.6 billion under the U.S. government’s CHIPS Act. The company will receive $6.6 billion in grants to expand its manufacturing facility in Phoenix, Arizona. Additionally, TSM is eligible for a $5 billion incremental loan.

TSM has invested in two factories at the site and will use the funds to build a further factory. The company’s total investment across all three plants is estimated at $65 billion. This marks “the largest foreign direct investment in a greenfield project in U.S. history,” the release said.

TSM plans to start producing 2-nanometer technology wafers at its second factory in 2028.

TSM Chairman Mark Liu also expressed his optimism: “Our U.S. operations enable us to better support our U.S. customers, which include many of the world’s leading technology companies. Our U.S. operations will also expand our efforts to develop semiconductors The ability of technology to advance in the future.

To date, most of TSM’s manufacturing capabilities are located in Taiwan, which poses geographic risks (potential threats of Chinese invasion, earthquakes, etc.). With the latest expansion announcement, this risk will be mitigated. As U.S. manufacturing increases, TSM may be able to more efficiently meet the needs of its top customers, such as U.S.-based Nvidia, AMD, and Apple. This increases TSM’s production capacity.

TSM trades at cheap valuation

Looking at valuation, TSM looks cheap. Currently, the company’s expected price-to-earnings ratio is 23 times, which is much higher than that of similar companies and is extremely attractive. Semiconductor company Advanced Micro Devices has a higher forward P/E ratio (49 times), while artificial intelligence giant Nvidia has a forward P/E ratio of 36.4 times.

Wall Street analysts expect TSM’s earnings per share to reach $9.02 in fiscal 2026. Therefore, considering the strong growth potential in the artificial intelligence space, it makes sense to consider buying TSM stock at current levels.

Do analysts think TSM stock is a buy?

Wall Streeters are clearly optimistic about TSMC stock. Overall, the stock earns a Strong Buy consensus rating based on eight unanimous Buys. The average price target for TSM stock is $154.14, implying an 8.2% upside potential from current levels.

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Conclusion: TSM offers good long-term growth opportunities

The semiconductor industry is experiencing substantial growth, driven largely by the artificial intelligence boom. TSM and its AI-focused peers will benefit from this continued demand. With strategic investments and expansion plans in place to meet future demand, TSM appears poised for continued growth. Given these factors, I’m leaning toward buying the stock at current levels and predict long-term gains from its artificial intelligence potential.

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