Taiwan Semiconductor Stock: Own It, Don't Trade It

Key Points

• Taiwan Semiconductor stock has yet to price in this massive development; despite trading at new highs, investors shouldn't sell.
• Considering all that is happening to the chip supply chain worldwide, this is a buy-and-hold stock.
• A massive valuation gap could take this stock into another multi-year run for buyers.

One of the biggest mistakes investors can make is constantly trading in and out of the wrong stocks, triggering one taxable event after another on their gains. While some smaller, more volatile stocks may lend themselves to short-term trading, others call for the opposite approach—a steady buy-and-hold strategy.

Taiwan Semiconductor Manufacturing NYSE: TSM fits squarely into that second category. As a dominant force in the semiconductor industry, it holds a massive footprint in one of technology’s hottest areas. The sector is on the verge of major change as the United States moves to onshore chip manufacturing, especially with new trade tariffs targeting countries that supply much of the world’s semiconductors.

With this in mind, Taiwan Semiconductor is a stock best suited for long-term accumulation—buying gradually and holding for an indefinite period.

The reason goes beyond the company’s staggering $1 trillion market value. It also lies in the major investments and expansion into the United States that are set to unfold in the coming years.

The Bull Case for Taiwan Semiconductor Stock

There has never been an invalid bull case for this company. Still, today more than ever, investors should stay alert to the underlying issues that could push this stock to new record highs. Even though it already trades at 97% of its 52-week high, chances are new ceilings will be made in the coming quarters and years, despite what volatility may come its way.

The reason is that President Trump is now increasing tariffs on semiconductors, and as recently announced on a live CNBC interview, his rollout points to a high of 200% tariffs by 2027, giving companies like Taiwan Semiconductors a concrete timeline to get their manufacturing capacity within the United States.

This means investors can get in early on this massive move, as onshoring its presence will also allow Taiwan Semiconductor to remain one of the leading names in semiconductor equipment and technology, most of which is used by other giants of industry like NVIDIA Co. NASDAQ: NVDA and Apple Inc. NASDAQ: AAPL.

With a few years of gains nearly spelled out for investors, selling at the current highs would be futile, since they would only have to keep buying higher and higher, again stacking up more tax events for themselves unnecessarily. In fact, anyone who sells this stock today is most likely doing it for portfolio weighing reasons.

For instance, institutional investors from Sanders Capital recently offloaded 7.8% of their massive $8.7 billion position in Taiwan Semiconductor. This should not be seen as a bearish sign, considering that this stock represents 11.6% of their portfolio, a recent run to 52-week highs likely bloated the stock to become too big a name in their book.

This is a common practice at investment funds, where they reduce a name’s weight in a portfolio to avoid it becoming too big a constituent, thereby not necessarily indicating a change in sentiment or view toward the company.

Where Taiwan Semiconductor Can Go Next

This is a more abstract question that can be answered in the same way as it is traditionally responded to by investment banks on Wall Street. Taiwan Semiconductor stock trades at a price-to-earnings (P/E) ratio of 27.6x today, but it still offers a steep discount to the rest of the computer sector’s average of 50.3x.

Perhaps some investors and analysts had discounted this stock due to fears that it was so exposed to the Asian region, where most trade tariffs seem to be focused. However, changing the game plan to onshoring in the United States renders this bearish view useless.

That change alone could be the catalyst to bring Taiwan Semiconductor stock to a valuation more in line with where the rest of its peers are trading today in terms of P/E multiples. More than that, the fundamental story is strong enough today to make this happen.

In the latest quarterly announcement, Taiwan Semiconductor's stock reported $2.47 in earnings per share (EPS) compared to the Wall Street consensus for only $2.13, reiterating the fact that even analysts may be looking at this company through an overly conservative lens.

As compliance with global tariffs and changes in demographics clear the way for future growth, further EPS beats in the future may very well start to deliver the sort of upside Taiwan Semiconductor has been missing out on compared to peers. Therefore, trading this stock would be a costly mistake for impatient investors; this is a buy-and-hold name.