Should You Invest $1,000 in Taiwan Semiconductor Stock Today?

Globe and Mail

10 hours ago

During the month of May, stocks started exhibiting some much-needed resilience. The S&P 500 and Nasdaq Composite indexes rose by 5% and 8%, respectively.
After bearing the brunt of precipitous sell-offs early this year, semiconductor stocks have started to stage a comeback. Last month, shares of Nvidia and Broadcom climbed by more than 20%, while Advanced Micro Devices surged by roughly 15%.
Lagging behind the usual suspects, however, was Taiwan Semiconductor Manufacturing (NYSE: TSM). While the stock's 12% gains beat the broader market, they still trail the chip industry's leading names.
Below, I'll delve into why Taiwan Semi looks like a great buy right now. From there, I'll illustrate how a $1,000 investment could wind up being a multibagger for patient, disciplined investors.
A hidden gem in a sea of semiconductor stocks
Nvidia and AMD design chipsets known as graphics processing units (GPU). GPUs have the capability to run sophisticated calculations at fast speeds, which gives them an edge over traditional compute processes when it comes to developing generative AI applications.
Cloud hyperscalers such as Microsoft, Alphabet, and Amazon, as well as big tech giants Meta Platforms and Oracle, have been buying GPUs in droves over the last few years in an effort to build out data centers and infrastructure services. While the robust demand for chips directly benefits Nvidia and AMD, Taiwan Semi has been an indirect beneficiary of these tailwinds.
The reason? Because Taiwan Semi specializes in foundry services that actually manufacture the chip designs from Nvidia, AMD, and many others. In other words, the largest data center businesses in the world rely heavily on Taiwan Semi's fabrication business.
Taiwan Semi is positioned for monster growth
In the chart below, I've illustrated Taiwan Semi's revenue, gross profit, and net income over the last three years. As the slopes of the lines indicate, TSMC's sales and profitability profile are both steepening.
TSM Revenue (TTM) data by YCharts
To me, this signals two things. First, demand for chips is on the rise -- hence the revenue line is rising. However, the more lucrative trend is that gross margin and net income are accelerating in parallel with sales. This suggests that Taiwan Semi has achieved a fair degree of pricing power relative to competitors such as Intel.
Considering AI infrastructure spend is expected to eclipse multiple trillions over the next five years, I don't see Taiwan Semi's growth prospects decelerating anytime soon.
Should you invest $1,000 in TSMC stock?
It's worth noting that technology investors Cathie Wood and Stanley Druckenmiller each recently added Taiwan Semi stock to their firms' respective portfolios. While blindly following institutional capital flows isn't necessarily a prudent strategy, I do think TSMC's long-term prospects earn some more credibility thanks to the recent buys by such prominent investors.
In the chart below, I've illustrated how a $1,000 investment in Taiwan Semi stock 10 years ago is now worth approximately $8,500. Achieving almost a tenfold return in 10 years is impressive -- even for a growth stock.
TSM data by YCharts
There are a couple of important ideas to take away from the chart above. First, the trends clearly show that like many of its peers, TSMC stock has kicked into a new gear over the last couple of years thanks to a bullish AI narrative. Hence, the share price gains following the sell-off in 2022 appear overly pronounced.
Here's the thing, though: Had you invested $1,000 in Taiwan Semi stock on Nov. 30, 2022 (the day ChatGPT was commercially launched), you would have doubled your money. This underscores the idea that holding on to a stock for long-term periods (i.e. 10 years or more) can lead to outsized gains compared to shorter-term, volatile periods.
I think now is a great time to invest $1,000 in Taiwan Semi stock. The company's future growth prospects are arguably far more robust than they were 10 years ago, making now an interesting time to begin accumulating shares for a long-run position.
Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Spatacco has positions in Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Meta Platforms, Microsoft, Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.