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Why Taiwan Semiconductor Is the Perfect Play on the Global Chip Shortage

Taiwan Semiconductor (NYSE:TSM) is the largest contract chipmaker on the planet. As such, if you’re bullish on the semiconductor market and you’re willing to invest internationally, TSM stock should be right up your alley.

image of TSM semiconductor office building
Source: Sundry Photography / Shutterstock.com

Yet, some folks might be concerned if they’ve been watching the headlines lately. There’s a severe microchip shortage, and it’s impacting the tech markets of major economies, including the U.S. and China.

Since the supply-and-demand curve in semiconductors has become so lopsided, and because Taiwan Semiconductor has such a major presence in the microchip market, there may be an opportunity to seize the moment with a position in TSM stock.

Indeed, InvestorPlace contributor Dana Blankenhorn even went so far as to call Taiwan Semiconductor the “most important company in the world.” So, let’s delve into this underappreciated chip-making giant, starting with a price analysis of the stock.

TSM Stock at a Glance

It’s safe to say that the onset of the novel coronavirus pandemic didn’t cause any permanent technical damage to TSM stock.

If anything, the pandemic seems to only have accelerated the shift to remote working and the demand for electronics. The result has been a doubling of the Taiwan Semiconductor share price within the span of a year.

Back in April 2020, you could have bought TSM stock for around $53. Those days are long gone, as nowadays you’ll have to pay close to $120 per share.

On the other hand, this doesn’t mean that the shares are expensive. Consider the fact that the stock has a trailing 12-month price-to-earnings ratio of 32.19x.

That’s not excessive, especially for a tech stock. Plus, Taiwan Semiconductor pays out a forward annual dividend yield of 1.47%.

Therefore, TSM stock should appeal to value-focused traders as well as income-seeking investors.

Supply Crunch Could Persist

If you’re expecting the supply shortage in microchips to abate in the near future, you might be disappointed.

The world’s over-stretched chip-making factories may struggle to meet the vast global demand for quite a while. Persistent tensions between the U.S. and China could exacerbate this problem.

Taiwan Semiconductor, which controls over half of the global market for made-to-order microchips, recently warned that the shortage could extend into next year.

This may be precipitated by customers anticipating further deterioration in U.S.-China relations, and consequently placing orders in advance.

Taiwan Semiconductor could benefit from this if Chinese tech companies accelerate their purchases of microchips due to concerns over possible further sanctions from the U.S. government.

Growth Outlook Raised

In other words, Taiwan Semiconductor might be able to take a challenging situation between nations and turn it into a net positive for the company and its stakeholders.

In light of this, Taiwan Semiconductor recently hiked its revenue-growth outlook for 2021 to 20% in dollar terms.

That represents a marked improvement compared to the previous forecast of “mid-teens” expressed in January.

Moreover, Taiwan Semiconductor Chief Executive CC Wei recently confirmed his company’s plans to invest $100 billion over three years.

Taiwan Semiconductor CFO Wendell Huang maintained that this sizable capital investment is necessary as the company “enters a period of higher growth, underpinned by the multi-year structural megatrends of 5G-related and high-performance computing.”

Undoubtedly, the company wouldn’t make such a huge capital investment if the executives didn’t have the confidence — and if Taiwan Semiconductor didn’t have the financial wherewithal, which it clearly does.

The Takeaway

So, is Taiwan Semiconductor the “most important company in the world”? It’s hard to say, but at the very least, it might be the most important chipmaker.

As for TSM stock, the share price has doubled but still likely has room to run. Shareholders can rest assured that they’re invested in a massive business and the supply demand balance weighs in the company’s favor.

On the date of publication, Louis Navellier had a long position in TSM.  Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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Article printed from InvestorPlace Media, https://investorplace.com/2021/04/taiwan-semiconductor-tsm-stock-perfect-play-on-global-chip-shortage/.

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