The Taiwanese chipmaker has been generating reliable profits for nearly 30 years.
taiwan semiconductor (TSM -0.82%) The company became the first Taiwanese semiconductor manufacturer to list its stock on the New York Stock Exchange on October 8, 1997. The company went public at a price of $5.27 per split-adjusted American Depositary Receipt, making his $1,000 investment in the IPO worth nearly $24,000. today.
In the 26 years and six months since its U.S. debut, TSMC has grown to become the world's largest and most advanced contract chipmaker. For top fabless chipmakers, that's no longer possible. Nvidia, AMD, Qualcommand apple — Manufacture the smallest, densest, most power-efficient chips without using TSMC's foundry. Let's take a look back at TSMC's history, how it has outlasted its competitors, and where it's headed next.
Image source: Getty Images.
A brief history of TSMC
TSMC was founded in 1987 as a government-backed chip manufacturing venture. The Taiwanese government previously hired Morris Chan, who had worked with the company for 25 years. texas instrumentslead the project.
From 1987 to 2022, TSMC shrunk its chip manufacturing node from 3 microns (3000 nanometers) to 3 nanometers. Manufacturing these small chips became increasingly difficult and expensive, and many other chip manufacturers simply gave up.
AMD has spun off its own foundry division, global foundries, became a fabless chip manufacturer in 2009. TSMC's domestic rival, UMCIn 2018, the company stopped developing small chips beyond the 14nm node. intel It suffered from delays and shortages during the transition from 14nm to 10nm chips.
Currently, the major foundries are TSMC, samsung, Intel — can produce the world's smallest and densest chips. TSMC is still one or two chip generations ahead of Samsung and Intel in this fierce “process competition.”
TSMC is ahead of Samsung and Intel. ASMLThe two companies pioneered the use of extreme ultraviolet (EUV) lithography systems to optically etch the smallest circuit patterns onto silicon wafers. TSMC was initially reluctant to buy the expensive system, which costs about $200 million each, but Apple funded its first EUV system purchase in 2014 to support its own first-party chip production. did.
How fast is TSMC growing?
From 1997 to 2023, TSMC's annual revenue and net profit both increased at a compound annual growth rate (CAGR) of 16% in Taiwan dollar terms. The global semiconductor market continued to grow despite enduring several cyclical downturns.
TSMC's recent economic slowdown occurred in 2023, with sales and earnings per share decreasing by 4.5% and 17.5%, respectively. These declines were caused by his two major challenges: the slowdown in PC shipments in the post-pandemic market and the end of his 5G upgrade cycle for smartphones. These headwinds offset strong growth in the AI market.
What's next for TSMC?
However, TSMC expects revenue growth in the “low to mid-20s range” in 2024, as the expansion of the AI market will easily offset slower growth in the PC and smartphone markets. In the latest conference call, CEO CC Wei said the company's revenue from server AI processors has “more than doubled this year,” and that it will account for “lower one-tenth of full-year revenue.” ” I expected it to be. Wei also said the AI processor market will grow at a CAGR of 50% over the next five years, accounting for more than one-fifth of sales by 2028 and becoming the “largest contributor” to overall revenue growth. I predicted it would be deafening.
Analysts expect TSMC's sales and earnings per share to both grow at a CAGR of 20% in Taiwan dollar terms from 2023 to 2026. The company's stock still looks reasonably valued compared to its forward P/E growth rate of 19 times, offering a well-balanced opportunity to benefit from the long-term expansion of the semiconductor market without betting on a single chip maker. It should continue to be the method.
Investors should still pay attention to Intel's recent attempts to catch up with TSMC and its exposure to geopolitical tensions between the US, China, and Taiwan. That being said, I believe TSMC remains a top semiconductor stock to buy for the foreseeable future.
Leo Sun holds positions at ASML and Apple. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and Texas Instruments. The Motley Fool recommends Intel and recommends options for long January 2025 $45 calls on Intel and his short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
