Taiwan Semiconductor (NYSE:TSM) is the world’s largest dedicated independent semiconductor foundry. It is in many ways more of a manufacturer than a tech stock, since this company essentially is the parts supplier to many electronics companies, and the means of production for companies like Apple that come up with great ideas and just need someone else to do the dirty work.
But while it’s not very innovative in its own right, thanks to the steady increase of demand for semiconductors worldwide we have seen big growth for TSM in recent years — pushing the stock back up to valuations not seen since early 2000.
So where does Taiwan Semiconductor go from here? That’s much more iffy. It’s true that organic growth exists if the economy continues to mend and technology continues its steady march into all corners of the home and office. However, the bottom line is that TSM is heavily reliant on contracts with third parties that have the flashy gadgets and great ideas. If it’s an iPhone 5 and iPhone 6 supplier in the years ahead? Good news. If it’s left out? Well, investors will be left out, too.
There’s no doubt that shares have momentum right now. But don’t forget that while revenue is tracking $15.8 billion for the current fiscal year, it bottomed out at under $9 billion in fiscal 2009 because of the economic downturn and resulting chip glut. This is very much a cyclical stock, so investors should be wary of buying a top, considering TSM is at a 12-year high.
Note: March 21, 2000, stock prices are adjusted for splits and dividends.
Jeff Reeves is the editor of InvestorPlace.com, and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace?.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff did not hold a position in any of the aforementioned stocks.