Should You Hold Taiwan Semiconductor (TSM)?

[View in browser]( [The Spill Logo] BROUGHT TO YOU BY: [Logo]( Proprietary Data Insights Financial Pros’ Top Semiconductor Stock Searches in the Last Month Rank Ticker Name Searches #1 [NVDA]( Nvidia Corp 317 #2 [AMD]( Adv Micro Devices 129 #3 [INTC]( Intel Corp 64 #4 [TSM]( Taiwan Semiconductor Manufacturing 62 #5 [AVGO]( Broadcom Ltd 27 #ad [A 96% Win Rate – in a Simple Options Trade]( Brought to you by [Weiss Ratings]( [He cracked the code to crypto]( [Weiss Ratings - He cracked the code to crypto]( Crypto trader Juan Villaverde has cracked the code. He released his proprietary timing algorithm in the middle of a raging crypto bull market, at the beginning of 2018. In the years since, Juan has gained a reputation for nailing the really big crypto calls. Juan’s big predictions have drawn attention and praise from places like CNBC, Fortune, Forbes and The Motley Fool. Now, his crypto timing model is saying something huge. If you want to take advantage, you need to act quickly. [Click here to get Juan’s latest prediction.]( Should You Hold Taiwan Semiconductor (TSM)? Taiwan Semiconductor (TSM) is the backbone of the semiconductor industry. Its foundry business (manufacturing chips) competes directly with Intel (INTC), producing processors for a who’s who of tech companies, including Advanced Micro Devices (AMD), Nvidia (NVDA), Apple (AAPL), and Qualcomm (QCOM). While 2023 was a challenging year, 2024 looks bright, with Q1 sales up 12.9%, with full-year guidance setting sales growth at the low to mid 20% range. AI chips are a key driver for TSM’s projections, which is why we expect the company’s stock to keep ratcheting higher. But at current prices, is this stock right for your portfolio? Taiwan Semiconductor’s Business Not everyone knows this, but companies like Nvidia and AMD don’t make their processors. They only design them. The manufacturing is outsourced to foundries like TSM and Intel. Yet, for the better part of two decades, TSM has been the clear winner of the two. As a foundry, TSM invests in capital equipment to manufacture microprocessors. It serves everyone from the smartphone industry to high-end graphics. Its business breaks down into the following platforms: - Smartphones (39% of revenues) - Specializes in producing advanced chips that power a broad spectrum of smartphones, from high-end to budget-friendly models. - High-Performance Computing (46% of revenues) - Focuses on manufacturing chips for servers, gaming computers, and other devices requiring significant processing power. - Internet of Things (6% of revenues) - Supplies semiconductors for a myriad of connected devices, enhancing the functionality and efficiency of IoT ecosystems. - Automotive (6% of revenues) - Develops chips that are critical for the modern automotive industry, including those used in electric vehicles, infotainment systems, and driver-assistance technologies. - Data Communications Equipment (2% of revenues) - Produces semiconductors that facilitate data transmission and networking in an increasingly connected world. - Others (2% of revenues) - Encompasses a range of services and products outside the primary categories, including design and development services. [Revenue] [Source: TSM Q1 2024 Earnings Slides]( TSM announced plans to build a third fabrication plant in Arizona in early April. The first plan is expected to begin production in 2025, helping bring more manufacturing into the U.S. and reducing geopolitical risk. Financials [Financials] Source: Stock Analysis TSM’s gross margins have compressed slightly in recent years. However, management forecasts that they will remain steady in 2024, as will operating margins. Free cash flow margins were down near 14%. That’s expected to increase slightly as Capex lands around $28-$30 billion for 2024. Valuation [Valuation] Source: Seeking Alpha As a manufacturer, TSM garners a lower P/E ratio and price-to-cash flow, similar to Intel’s. Yet, its better margins and growth will often garner a premium, especially in the price-to-sales ratio and price-to-cash flow. We can also see the price-to-book ratio is higher for TSM, highlighting investor expectations it will do more with every dollar of assets it owns. Growth [Growth] Source: Seeking Alpha Neither Intel nor TSM saw much growth in 2023. However, that will change in 2024. TSM is forecast to increase sales by +20% overall, though analysts have pegged them closer to 10%. Intel will be lucky to generate the same sales levels as 2023. TSM is also expected to see its profits grow as margins begin to improve steadily. Profitability [Profit] Source: Seeking Alpha Speaking of margins, TSM’s EBITDA certainly beats out anyone on this list. And its net income margin is second only to Nvidia. That’s helped them deliver solid returns on equity, assets, and total capital. [Decoding Your Finances: The Juice Edition]( Tackling unaffordable housing, the high cost of living, retirement savings dilemmas, and investment uncertainties? The Juice understands. Our focus is on unraveling the money-related issues crucial to you and your family's future. Don't miss out— [Subscribe now!]( Our Opinion 8/10 Taiwan Semiconductor is what we’d consider the picks-and-shovels play of the semiconductor space. And unlike Intel, TSM has increased sales and improved performance despite inflationary and geopolitical pressures. We expect their new U.S. plants to help improve margins even further, though it will take years to realize their full potential. 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