TSM Stock Forecast: Stock to Buy for the Chip Shortage?
Many people overlook TSM stock forecasts. Most the world’s biggest companies are well-known. For example, if you stopped a random person on the street, there’s a good chance that they’d know of Facebook, Tesla or Visa. They could probably even tell you exactly what products these companies make and name the founders or CEOs.
This isn’t exactly the case for Taiwan Semiconductor Manufacturing (NYSE: TSM). However, despite this lack of brand recognition, TSM is just about as big as these other three companies in terms of market capitalization.
One reason you might not know of TSM is because it sells products to other businesses instead of consumers. If you’re not familiar, TSM is the world’s largest semiconductor foundry. A semiconductor foundry manufactures (or fabricates) the designs of other companies. In particular, TSM manufactures processing chips.
Since there is currently a global chip shortage, many investors are looking for a profitable way to trade it. So does this chip shortage mean that TSM could potentially earn record profits? Or will the chip shortage ultimately end up crippling its business?
Let’s take a look at a TSM stock forecast and find out. After diving into TSM predictions, check out these other top microchip stocks as well.
TSM Stock Forecast
Note: I’m not a financial advisor and am just offering my own research and commentary. Please do your own due diligence before making any investment decisions.
What Does TSM Do?
In the world of advanced electronics, few companies produce their own products from start to finish. For example, Apple designs its own iPhone and Mac processing chips. However, once it has completed the design, it sends an order to companies like TSM. From here, TSM builds the chip and ships them to Apple. In fact, Apple is TSM’s most important customer.
Apple used to use many different chip makers for its products. However, it shifted over the years and now almost exclusively uses TSM chips. This is just part of the reason why TSM has delivered an annual revenue growth rate of 17.4% that dates back to 1994.
TSM doesn’t just work with Apple though. TSM manufacturers processing chips for just about any company that needs one. TSM’s chips are used in everything from cell phones to fighter jets to NASA’s Perseverance Rover.
In 2020, TSM was responsible for 24% of the world’s semiconductor output. Today, it is the 11th largest company in the world by market capitalization and the world’s most valuable semiconductor company. It was also the first Taiwanese company to trade on the New York Stock Exchange.
For this TSM stock forecast, let’s take a look at what the company has been up to recently.
TSM Recent Announcements
- Expanding manufacturing capabilities – TSM is currently in the process of building a mega-factory in Arizona. This process was set in motion when President Trump made it known that he wanted chips to be built in the United States.
- Potential subsidies – The Biden Administration has continued building off Trump’s proposal. So far, Joe Biden has proposed $52 billion in subsidies to lure chip makers to U.S. soil.
With that said, let’s take a look at how TSM’s stock price has moved recently.
TSM Stock Price Prediction
Note: The numbers below are listed in TWD. These will still give you a sense of how the company is growing year over year. Don’t forget to convert the currency when comparing to U.S.-based companies.
In 2020, TSM posted total annual revenue of $1.34 trillion as well as a net income of $517 billion. This was a 25% year-over-year spike in revenue as well as a 50% increase in net income. Over the past five years, TSM’s revenue has grown at an annual rate of 9.6% (since 2016).
More recently, TSM reported Q3 2021 revenue of $414 billion and net income of $156 billion. Notably, TSM also had a quarterly net profit margin of 37.7%. TSM also has a dividend yield of 1.5% with shares trading around $120.
TSM stock is up close to 10% so far in 2021 and over 300% over the past five years. Most of this growth came in 2020 when the stock spiked 100%.
Now, let’s get to the most important question for this TSM stock forecast. Should you buy TSM stock? Let’s look at both some pros and cons to investing…
Should I Buy TSM Stock? Potential Upsides
One big upside to TSM stock right now is the factory that it’s building in Phoenix. TSM has had a long history of aggressively (but successfully) ramping up its production capabilities. In fact, its decision to focus almost entirely on foundry has been one of the reasons for its success. Over the past few years, competitors have strayed towards other aspects of the chip production process. This has allowed TSM to emerge as a foundry leader.
Even prior to the chip shortage, TSM had plans to invest $100 billion to scale up production over the next three years. It’s possible that TSM could emerge from the chip shortage as one of the only chip makers able to meet the demand.
TSM has also stated that it’s committed to its cash dividend. It started paying dividends in 2004 and has never reduced its dividend per share. The company does not expect any issues with being able to pay out this dividend in the near future.
Due to these factors, TSM stock seems to have good potential for appreciation as well as its dividend. However, we know that no stock has zero risk. Let’s take a look at a few potential downsides to buying TSM stock.
Should I Buy TSM Stock? Potential Downsides
The chip shortage is an interesting situation which impacts the TSM stock forecast. It seems like it should be a good thing for TSM since the demand for chips is sky-high right now. However, it could also end up dragging TSM stock down.
This is mainly because creating semiconductor chips is an incredibly complex process. Unlike an Amazon warehouse, TSM can’t just hire more employees to ramp up production. It requires specialized knowledge. It also requires personalized factories that take years (and millions of dollars) to produce. By the time the Phoenix factory is up and running, there is no telling what might be going on in the world. Also, massive construction projects almost always end up taking longer to complete than people anticipate.
Another thing to note is that TSM stock surged 100% in 2020. This could mean that investors have already priced in higher-than-average success for the next few years. If TSM falls below these expectations then the stock could come crashing back down.
Final Thoughts on TSM Stock Forecast
In general, Taiwan Semiconductor Manufacturer is one of the world’s largest corporations. You don’t get to be one of the biggest companies in the world without knowing what you are doing. Despite a few short-term roadblocks (COVID-19, supply chain issues, etc.) there’s a good chance that management will lead the company to a successful future.
With that said, TSM’s stock price has already more than doubled since 2020. This could mean that investors expect TSM to profit greatly in the short term due to the current chip shortage. If TSM fails to meet investor expectations then the stock could fall in the short term.
I hope that you’ve found this article valuable when it comes to learning what a TSM stock forecast could look like. As usual, all investment decisions should be based on your own due diligence and risk tolerance.
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About Teddy Stavetski
A University of Miami grad, Teddy studied marketing and finance while also playing four years on the football team. He’s always had a passion for business and used his experience from a few personal projects to become one of the top-rated business writers on Fiverr.com. When he’s not hammering words onto paper, you can find him hammering notes on the piano or traveling to some place random.