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Taiwan Semiconductor Manufacturing Stock (NYSE:TSM): Why Its Market Value is Surging

Posted on Tuesday, July 28th, 2020 by Sean Sechler

Taiwan Semiconductor Manufacturing Stock (NYSE:TSM): Why Its Market Value is Surging

When you think about the biggest companies in the world by market capitalization, there are several names that immediately come to mind. However, one Taiwanese semiconductor company that is flying under the radar for many investors has been rocketing up the most valuable companies in the world list thanks to billions of dollars added to its market cap over the last week. Taiwan Semiconductor Manufacturing (NYSE: TSM), or TSMC, is a business that currently sits above household names like Walmart (NYSE: WMT) and Johnson & Johnson (NYSE: JNJ) in terms of market cap and could be ready for even more gains going forward.

The demand for semiconductor products and services is steadily increasing, driven largely by more people working remotely, the rollout of 5G networks, and lots of major companies moving into the cloud. This is leading most of the major semiconductor stocks higher, including TSMC, a stock that is up over 35% in July alone. The company’s value is rising sharply and it is definitely a stock that is worth watching closely going forward. Here are a few reasons why Taiwan Semiconductor Manufacturing’s market value is surging.

Intel’s Loss is TSMC’s Gain

In the business world, oftentimes one company’s loss is a direct competitor’s gain. This holds true for TSMC, which is definitely benefitting from some negative headlines related to rival chipmaker Intel (NASDAQ: INTC). When Intel announced last Friday that its next-generation 7-nanometer based CPU chips are going to be delayed for approximately six months, shares of the company tanked. Conversely, shares of TSMC began rising sharply with analysts anticipating a potential leadership shift in the industry.

Intel might even be outsourcing some of its microprocessor manufacturing to Taiwan Semiconductor Manufacturing, which would be even better news for the semis goliath. When one of your direct competitors has to come to you for help, it is absolutely positive. Intel has yet to officially confirm that they will use TSMC as its subcontractor at this time, but these recent headlines have been a positive market catalyst for TSMC stock thus far.

Largest Semiconductor Manufacturer in the World

Taiwan Semiconductor Manufacturing is the largest semiconductor manufacturer in the world with 54% market share. The company produces cutting-edge chips that power some of the most popular devices in the world, which is another reason why shares have been rising. TSMC generated 47% of its Q2 net revenue from the smartphone market while 33% of its Q2 revenue came from the high-performance computing market, two of the biggest technologies in the world. With continued data center expansion and companies preparing for the adaptation of 5G technology, business is booming for the chipmaker.

Many of the hottest tech companies in the stock market use TSMC to handle their manufacturing needs. For example, some of this company’s customers include Advanced Micro Devices, Nvidia, Broadcom, Qualcomm, Intel, and Apple. As these major companies continue to grow and produce innovative new products, they will definitely be relying on TSMC to manufacture the chips which power their progress.

Convincing Q2 Earnings Report

Another reason why this stock has been rallying has to do with a solid earnings report that saw the company post 81% year-over-year EPS growth and 36% year-over-year sales growth. Revenue in Q2 was also up by 34% versus a year ago, confirming that the chip-making giant has been able to handle the impact of the pandemic without major disruptions. What is really interesting to note about the Q2 report is the company’s increasingly strong 39% net profit margin. With such robust margins and strong forward guidance, TSMC should post solid net income and earnings results for the rest of the year.

You also have to like the robust dividend yield that this stock has to offer. With a dividend yield of 2.16% and strong free cash flow generation, the dividend and earnings growth for TSMC could be something for investors to bank on for years to come.

Strong Demand Drives Growth

The growing demand for high-performance chips and new technology is fantastic news for the world’s largest semiconductor manufacturer, especially since TSMC creates 85% of the world’s semiconductor prototypes. Combine that with the recent news about Intel’s struggles and you have some very solid catalysts that are driving the price of this stock higher. The company is exposed to some geopolitical risk since it is an American depository receipt (ADR) based in Taiwan, this is a stock that is poised to continue posting immense growth and rewarding investors along the way. The stock is pulling back as of this writing, so keep an eye on it for an attractive entry if you are interested in opening a position.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Walmart (WMT)2.1$129.97+0.5%1.66%24.71Buy$134.31
Johnson & Johnson (JNJ)2.4$148.60+0.7%2.72%21.73Buy$164.27
Tyson Foods (TSN)2.2$62.80+0.5%2.68%12.64Hold$78.20
Intel (INTC)2.4$48.03-1.1%2.75%8.85Hold$61.94
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