We came across a bullish thesis on Taiwan Semiconductor Manufacturing Company Limited (TSM) on Substack by Long-Term Pick. In this article, we will summarize the bulls’ thesis on TSM. Taiwan Semiconductor Manufacturing Company Limited (TSM)'s share was trading at $207.95 as of Feb 10^th. TSM’s trailing and forward P/E were 30.21 and 23.53 respectively according to Yahoo Finance.

A worker operating a robotic arm in a semiconductor manufacturing facility.

TSMC’s latest earnings report reinforced its position as the leading semiconductor foundry, with strong demand for advanced process nodes driving revenue growth. Fourth-quarter revenue rose by 14.3%, fueled by robust sales of 3nm and 5nm technologies. The company’s gross margin improved by 1.2 percentage points to 59%, benefiting from higher capacity utilization and productivity gains. Advanced technologies (7nm and below) accounted for 74% of wafer revenue, underscoring TSMC’s dominance in cutting-edge semiconductor manufacturing. High-performance computing (HPC) remained a key driver, with revenue increasing by 19% quarter over quarter, contributing 53% of total sales. Financially, TSMC remains in excellent health, with cash and marketable securities totaling TWD2.4 trillion.

Despite these strengths, challenges persist. Internet of Things (IoT) revenue declined 15% quarter over quarter, reflecting softness in this segment. Data center (DCE) revenue also fell by 6%, highlighting potential weaknesses. Looking ahead, first-quarter 2025 revenue is expected to decline by 5.5%, primarily due to smartphone seasonality. Additionally, overseas fab expansions are projected to dilute margins by 2% to 3% annually over the next five years. Inflationary pressures, particularly rising electricity costs in Taiwan, could further compress margins by at least 1% in 2025.

The fair price estimate is $288 reflecting stronger-than-expected revenue growth and sustained leadership in semiconductor technology. Importantly, the PEG ratio remains below 1, suggesting the stock remains undervalued relative to its growth prospects. TSMC’s financial strength, technological leadership, and ability to weather short-term headwinds position it as a compelling long-term investment opportunity.

Taiwan Semiconductor Manufacturing Company Limited (TSM) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 158 hedge fund portfolios held TSM at the end of the third quarter which was 156 in the previous quarter. While we acknowledge the risk and potential of TSM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.