TSMC(TSM) Gurufocus·2024-07-15 13:01Core Viewpoint - Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) is currently perceived as overvalued despite its strong operational developments and future growth prospects in AI-related revenue [1][10]. Operational Developments - TSM is expanding its operations internationally, with plans to build three fabrication facilities in Arizona over the next five years and two plants in Japan within three years [2]. - The company is also collaborating with a European Semiconductor Manufacturing Company in Germany, targeting production by the end of 2027 [2]. - TSM is developing a new chip-manufacturing technology called A16, expected to enter production in the second half of 2026 [2]. - Price increases for advanced process manufacturing have been implemented, ranging from 3% to 6%, with major clients like Nvidia, Apple, and Qualcomm accepting these increases [2]. - TSM anticipates its AI-related revenue to double in 2024 and grow at a 50% compound annual rate over the next five years, potentially reaching over 20% of total revenue by 2028 [2]. Financial and Valuation Analysis - Despite a recent contraction in revenue and net income, TSM's revenue grew by 16.5% year-over-year in the first quarter, with net income increasing by 8.9% [3]. - TSM holds over 60% of the global semiconductor foundry market, significantly ahead of Samsung's 14%, providing a strong competitive advantage [4]. - Analysts forecast a revenue CAGR of around 16% and an earnings per share CAGR of approximately 24% over the next five years, indicating potential margin expansion [5]. - The current price-sales ratio is around 11, while a more reasonable ratio would be around 7, suggesting the stock is overvalued at present levels [7]. Conclusion - TSM is strategically positioning itself for long-term success, but current valuations may lead to short-term to medium-term downside risks for new investors [10].