TSMC is the world's best manufacturer; fair value of $647 vs market price of $451 implies >43% upside over 12-18 months, supported by sold-out capacity and diversification investments.
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The next stock I will highlight as an undervalued semiconductor stock is Taiwan Semiconductor Manufacturing Company (TSMC). This is the company that connects all these things together.
If you are thinking of companies like Broadcom, Marvell, Qualcomm, Nvidia, AMD, and Apple, all of these companies rely on TSMC for at least some of their products.
In my opinion, TSMC is the best manufacturer in the world, without a doubt, regardless of its field of work. I think it's the best manufacturing company ever. This success has been proven for more than two decades, which is why those highly successful companies I mentioned earlier trust and rely on Taiwan Semiconductor Manufacturing Company.
It enables it to implement a business model based on lean assets. It enables it to outsource manufacturing because it can rely on TSMC.
I calculated the fair value of this company at $647 per share. I used the same methodology that I highlighted for Broadcom and applied it to Taiwan Semiconductor Manufacturing Company.
TSMC has also completely sold out of most of the products it manufactures for this year and next year. The company is investing tens of billions of dollars to expand and enhance its manufacturing capacity.
It is also aware of the greatest danger it faces, which is the threats from China and its willingness to escalate tensions with Taiwan. To counter these risks, TSMC is investing in geographic diversification.
It is investing in the United States to create more manufacturing capacity there. It invests in Europe and Japan, so it is expanding far beyond its main base.
With all of the above, the fair value estimate of $647 is significantly higher than the market price of $451, so I have calculated an upside of more than 43% for TSMC shares over the next 12 to 18 months.
This is a stock I don't yet own in my portfolio, but I am very interested in buying TSMC shares.
What this channel has said about $TSM
Parkev Tatevosian, CFA has 4 calls on this stock; only the adjacent ones are shown.