Taiwan Semiconductor Continues to Crush It. Does That Make the Stock a Buy in 2023? – The Motley Fool
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
The chip manufacturer is benefiting from multiple long-term trends.
Earnings season for the fourth quarter of 2022 kicked off last week with Taiwan Semiconductor Manufacturing (TSM 1.61%) — otherwise known as TSMC — releasing its quarterly results. The leading maker of high-end computer chips continued to impress investors, with shares soaring over 10% in the days following the press release. Even renowned investor Warren Buffett recently bought a stake in the business, purchasing $4 billion worth of stock for Berkshire Hathaway in the third quarter.
So what is drawing all these investors to buy TSMC? Let’s find out — and see whether you too should buy shares of the semiconductor giant in 2023.
TSMC’s Q4 results showed strong growth and margin expansion, a theme for the business in 2022. Revenue grew 26.7% year over year to $19.9 billion for the last three months, which was driven by impressive growth from the company’s high-performance computing customers. These customers include cloud infrastructure providers, artificial intelligence (AI) researchers, and other companies looking to build extremely fast computers.
TSMC’s operating margin was 52% in Q4, making it one of, if not the, most profitable manufacturing businesses in the world. Operating margin was up over 10 percentage points from Q4 last year. This shows the phenomenal economies of scale and pricing power TSMC is able to achieve as one of the two companies along with Samsung that can make cutting-edge computer chips.
For the full year, TSMC generated $76 billion in revenue and $37.76 billion in income before taxes, up from $56.82 billion and $21.9 billion, respectively, in 2021. Right now, TSMC is one of the largest companies in the world by net income, producing more on an annual basis than payments giants Visa and Mastercard combined.
The computer chip market has grown at an impressive rate in recent years and shows no signs of slowing down. Demand for semiconductors is booming as they are the key input to multiple large and fast-growing industries. These include, but are not limited to:
It may not be a smooth journey given the historical cyclicality of the semiconductor market, but demand for computer chips around the world should be higher five and 10 years from now. As long as TSMC maintains its market share for advanced semiconductors, its revenue and profits should grow along with the broader industry.
If you want to invest in the semiconductor space, buying shares of TSMC looks like a great way to do it. At a current market capitalization of $428 billion and with $34 billion in net income last year, the stock trades at a price-to-earnings (P/E) ratio of just 12.6. The S&P 500, for reference, has an average P/E of 20.8 at the moment. For a business with minimal competition in a fast-growing market, a P/E significantly below the market average looks like a steal, making TSMC a good bet for investors at today’s prices.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon.com, Apple, Berkshire Hathaway, Mastercard, Nvidia, Taiwan Semiconductor Manufacturing, and Visa. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.
© 1995 – 2024 The Motley Fool. All rights reserved.
Market data powered by Xignite and Polygon.io.
