Up 36.93% Since YTD: Is TSM the Hidden Key to Investing Success in the Chip Industry?
When it comes to chip stocks, the first names that come to mind are usually NVDA and AMD. But do you know how the companies quietly producing chips behind them are faring?
Curious about which stock this is? Let's find out!
Congratulations to @AlanGoh for a profit margin of $40.65 through trading $Taiwan Semiconductor Manufacturing(TSM)$! 👏
Congratulations to @S2KENNETHS2 for a profit margin of $21.09% through trading $Taiwan Semiconductor Manufacturing(TSM)$! 👏
Taiwan Semiconductor Manufacturing Company is a semiconductor foundry, which means it manufactures chips for other companies like $Advanced Micro Devices(AMD)$ and $NVIDIA Corp(NVDA)$.
The boom in AI has led to a high demand for chips, resulting in continuous growth for NVDA and AMD. Will TSM, as the world’s largest semiconductor maker, also benefit from this trend?
Dominance over the industry:
TSM leads the way in foundries. It holds a 59.5% foundry revenue share in a $129 billion industry in Q3 2023, with Samsung behind at 16.1%, and United Microelectronics Corporation (UMC) and GLOBALFOUNDRIES Inc. (GFS) at 6% both 6%. With a 2-firm concentration ratio of 76%, this industry is evidently dominated by several key players.
Another salient point is its gross margins.
As stated in TSM's Q423 management report published on January 18, 2024, their revenue increased 14.4% sequentially, "supported by the continued strong ramp of our industry-leading 3-nanometer technology". While other companies such as global foundries operate on 55nm processes at best, TSM remains the only foundry that has incorporated 3nm processes in its mass production. This explains their great appeal to technology giants.
Furthermore, TSMC's management expects gross margin to rise well above 50% further in the coming years - reflecting assimilation of advanced leading-edge nodes and better absorption of rising capital and technological investments in driving sustained growth.
With all the hype about AI simulation and development, NVDA and AMD are at the forefront of innovation. TSM is the sole provider of processor chips to these 2 companies, which could be attributed to its "pure-play" foundry ideology is a solid moat as it can focus on facilitating their clients' product development.
As the world's largest semiconductor maker, is TSM still worth buying into?
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