The article highlights Taiwan Semiconductor Manufacturing Company’s (TSMC) crucial role in the AI sector, contrasting it with S&P 500 ETFs. TSMC, the leading chip manufacturer, is not included in the S&P 500. The company is expanding rapidly amidst strong demand for AI chips, making it a compelling buy for tech investors.
In a financial landscape where S&P 500 exchange-traded funds (ETFs) reign supreme, one semiconductor stock is being overlooked. The Vanguard S&P 500 ETF, for instance, witnessed a staggering $117.4 billion influx last year, breaking previous records. Investors love the S&P’s broad exposure to major players, but amid the tech buzz—especially around AI—it seems a crucial stock is slipping through the cracks.
This undetected gem? Taiwan Semiconductor Manufacturing Company, or TSMC. The firm, the world’s largest chip foundry, isn’t included in the S&P 500 because it’s based in Taiwan. Yet TSMC is a powerhouse for AI innovation, without which many advancements might stall. Investors entrenched in tech should take a closer look.
With its severe tech lead, TSMC isn’t just a player in the semiconductor game; it’s dominating it. The company stands as one of the select few capable of producing chips at the cutting-edge 3 nm standards. This is no small feat—it’s essential for developing AI chips that need to balance power and efficiency like a tightrope walker. As demand for its superior chips skyrockets, TSMC is riding a wave of growth.
Sales climbed by 35% last quarter as AI chips, which are critical for high-performance computing, offset a dip in smartphone chip sales. TSMC’s advanced 5 nm and 3 nm technologies made up a hefty 58% of its revenue, showcasing how crucial these innovations are. Being the go-to foundry for prominent tech names like Nvidia and Apple, TSMC is reaping the rewards of its superior manufacturing processes, establishing a firm moat that others find hard to breach.
Looking ahead, TSMC is set to begin production of its next-gen 2 nm chips soon. The company is also not holding back on investments—planning to spend an eye-watering $38 to $42 billion this year alone, marking a 34% jump from last year’s budget. Add to that, TSMC is investing a whopping $100 billion to bolster manufacturing in the U.S. Not too shabby, right?
Despite the soaring shares—up 90% in 2024—TSMC’s stocks have slipped over 20% from their peak. So, yeah, it might be a buying season right now. Trading at under 19 times the expected 2025 earnings, it’s well below the average P/E ratio of the S&P 500, making it attractive in comparison. TSMC’s management remains optimistic about a mid-20% revenue growth outlook.
There are some concerns though—geopolitical tensions, chiefly from tariffs imposed by the Trump administration, could shake things up. If semiconductor costs rise for TSMC’s major customers, demand might take a hit. That said, TSMC has a robust position in the AI space, and so far, management mentions no changes in customer behavior.
So, if you’re solely riding the S&P 500 wave, maybe consider adding TSMC to your portfolio. With an estimated 1.8% of the index if it were to be included, carving out a slice of your investment pie for this stock could be a wise choice given its current low prices.
In short, while many investors find comfort in S&P 500 ETFs, they may be missing out on a significant opportunity with TSMC. The company’s strong performance in the semiconductor sector, particularly regarding AI technology, positions it as a vital addition to tech-focused portfolios. Despite geopolitical challenges, TSMC’s technological lead and growth potential suggest that now might just be the time to buy in.
Original Source: www.fool.com