TSMC Stock Deserves a Trillion-Dollar Valuation

Jason Simpkins

Updated June 17, 2024

TSMC — officially Taiwan Semiconductor (NYSE: TSM) — is the unsung hero of the AI industry, but its stock price doesn’t fully reflect that. 

In fact, if TSMC stock were appropriately priced, it’d be a trillion-dollar company joining the ranks of Microsoft, Apple, Nvidia, Google, Amazon, and Meta.

However, that designation is inevitable and probably closer than you think.

Indeed, TSMC is on pace to hit that $1 trillion mark in the next year. That would mean a 36% share price increase in the next 1218 months and who knows how much after that.

Because this company is foundational. There’s no AI without it. In fact, there’s not much of anything without it. 

Here’s why…

TSMC Stock Taiwan Market Dominance

Why TSMC Stock Is Due for a Revaluation

If you’re not familiar, TSMC is the largest semiconductor foundry in the world.

It makes microchips for the world’s biggest tech companies, including Apple (it’s biggest customer), AMD, Sony, Qualcomm, and, yes, Nvidia.

As such, it has the task of making advanced microprocessors designed and demanded by tech companies that have an insatiable appetite for more and more speed and efficiency.

No doubt, it was a tall enough task for TSMC to make microprocessors for the iPhone, but now the company is responsible for delivering the physical manifestation of AI’s massive potential. 

It’s the only company in the world capable of doing that.

To give you an idea of what that means, consider this… 

TSMC already leads the industry with a 3-nanometer technology. That’s 1/1,000th the size of a strand of spider silk, which measures 3,500 nanometers. And it’s the size of a gap between nodes on a TSMC microchip. 

Obviously, the more nodes one can fit on a chip, the more powerful it can be. And going even further, TSMC says it’s on track to have 2-nanometer (N2) production ready in the second half of 2025.

That will be the most advanced technology in the semiconductor industry in both density and energy efficiency, further cementing TSMC as the go-to microchip manufacturer for the world’s leading tech companies and AI developers.

However, that’s not the only reason TSMC stock is poised to continue its climb in 2025. 

Higher prices for its products will also factor in.

First, Taiwan’s government earlier this year hiked electricity prices for for large industrial users, including TSMC 

That will increase the company’s input costs, for sure. But TSMC is now publicly saying that it expects its customers to help shoulder that burden. 

“We expect our customers to share some of the higher cost with us, and we already started our discussion with our customers,” CEO C.C. Wei said on TSMC’s first-quarter earnings call.  

Now, if the past few years have taught us anything, it’s that corporations will use higher input costs to gouge consumers any chance they get. If their costs go up by 10%, they’ll charge consumers 20% more and call it fair. And there’s really not much you can do about it if you need their products and in this case, they do. 

No doubt, there’s enough demand for TSMC’s services among well-heeled customers like Apple and Nvidia to stomach higher prices. The alternative would be to manufacture their own chips, which they’re not going to do, because they can’t. 

At best, they could try to find another chip manufacturer, but again, almost none of TSMC’s competitors are capable of doing what it does.

That’s why TSMC makes 90% of the world’s most advanced processor chips.

It has all the leverage and Wei knows it. 

Make no mistake, he’s seen the success Nvidia’s had over the past few years. He’s seen the headlines. He knows how big and competitive AI has become. And now he wants a bigger cut.

He even told Nvidia’s CEO right to his face…

“I did complain to Nvidia’s CEO, Jensen Huang the ‘3 trillion guy’ that his products are so expensive,” Wei said. “I think those products are really valuable for sure, but I am thinking about showing [him] our value as well.”

Indeed, TSMC is the sole production partner for Nvidia’s most advanced AI training chips, including its latest Blackwell line.  

And given the price of Nvidia’s chips and TSMC’s vital role in their production, Wei says charging more for its services is a pretty novel concept that “anyone sitting at home can think up.” 

That’s just business. And Nvidia will accept it because it’s doing plenty well for itself.

Not only that, but other customers will accept it too, for the exact same reasons. 

The world’s most powerful programs AI or not need the world’s most powerful chips. And TSMC makes them. Period. 

That simple fact led to a 13% increase in first-quarter revenue for TSMC, and second-quarter revenue is expected to surge 27%.

Analysts rightfully expect continued strong growth through the remainder of this year and next, with revenue climbing 23% in 2024 and 22% in 2025. 

That, along with the investor buzz around AI and an increased focus on the “next Nvidia,” will be more than enough to carry TSMC stock to $1 trillion by the end of next year.

Fight on,

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Jason Simpkins

Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more…

In 2023 he joined The Wealth Advisory team as a defense market analyst where he reviews and recommends new military and government opportunities that come across his radar, especially those that spin-off healthy, growing income streams. For more on Jason, check out his editor’s page.

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