Taiwan Semiconductor May Profit from Chinese Manufacturing Issues

Globe and Mail

4 days ago

If there is one guarantee in today's stock market it's that volatility is sure to come back around, as President Trump still navigates through tariff negotiations with leading nations like China and Japan, there is a lot of gray space when it comes to how these deals will affect the technology sector, specifically in names exposed to the chipmaking and semiconductor industry.
While these products and technology were not in the list of items to be tariffed in recent proposals, investors need to be aware that specific export routes to China have been tackled recently, lifting the amount (and type) of chipmaking technology that can get through to Asia's powerhouse. While this was previously seen as a negative, it actually presents a great opportunity for the leaders in the supply chain.
A name that should immediately come to mind is Taiwan Semiconductor Manufacturing (NYSE: TSM), as it holds the majority of the supply chain's share; therefore, the stock is directly affected by pricing and inventory fluctuations in these demand bottlenecks.
The reasons this stock could go higher will become clear to investors in just a minute.
A Favorable Landscape for Taiwan Semiconductor Stock
While some changes will occur regarding which technology can be introduced into Chinese markets, not all of the supply can be blocked off, especially as the United States and China attempt to build goodwill and move trade talks forward.
That means that what little chipmaking equipment and raw materials can go into China will now become a commodity in high demand, and that is where Taiwan Semiconductor and its positioning in the industry come into play. As the main equipment manufacturer and provider, Taiwan Semiconductor is likely to hold a favorable pricing position.
As demand grows and supply options remain limited, economic principles suggest that sellers such as Taiwan Semiconductor will now have greater pricing power. That dynamic will surely show up in the company's gross margins and bottom-line earnings in the coming quarters.
In fact, during the initial release of the news for the technology sector, Taiwan Semiconductor delivered a rally of up to 11.6% over the past month, keeping it within 95% of its 52-week high levels. In terms of price action, investors can safely assume that the stock has considerable bullish optimism and momentum driving it.
Other fundamental metrics are now building on top of this favorable price action, and they may lead investors to a new all-time high for Taiwan Semiconductor stock in this current economic environment.
Demand Remains Hot for Taiwan Semiconductor's Products
The neat thing about a company like Taiwan Semiconductor is that it reports its revenue numbers on a monthly basis, helping investors and Wall Street analysts keep their fingers on the pulse of this business at all times. Over the past quarter, these numbers have shown the market why there should be nothing but optimism in this company.
Despite considerable uncertainty regarding tariff rates and ongoing negotiations, Taiwan Semiconductor experienced no change in demand, with the average annual revenue growth rate remaining at an impressive 45%. Even in May 2025, the month with the lowest growth rate, Taiwan Semiconductor reported an annualized 39.6% revenue increase.
That should be enough to show investors how strong the company's positioning is within the industry, and also a reason to expect these bottlenecks to keep the financials pushing on during the coming months and quarters. As bullish as these revenue figures may seem, they're not the deal-maker in this current setup.
What will drive the stock higher is where this revenue ultimately ends up. With a gross profit margin rate of up to 57.4% as of the latest quarter, investors can see where the value compounding will likely come from. As a large portion of each sale is retained within this highly efficient business, investors can safely expect decent growth in future earnings.
As a matter of fact, Wall Street analysts now forecast up to $2.65 in earnings per share (EPS) in Taiwan Semiconductor for the fourth quarter of 2025, a net jump of 25% from today's reported $2.12 in EPS. As most investors already know, where EPS growth goes, so does the stock price.
Considering that the Chinese bottlenecks due to embargoes are a relatively recent event, the increased buying power (and higher margins) have likely not yet been factored into these forecasts, increasing the chances that Taiwan Semiconductor will beat these Wall Street expectations.
This might be why Charles Shi, an analyst from Needham & Co., reiterated his Buy rating on the company, this time also placing a $270 per share valuation on it. From the current trading price, this view calls for a new 52-week high and a net upside potential of 18%, with a high likelihood of being revised higher in light of these new economic developments.
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