Why Taiwan Semiconductor Stock Popped Today
TSMC told its shareholders it expects to earn a record profit this year.
Tariffs could depress demand in the U.S. -- but not demand everywhere.
TSMC is confident it can continue growing at 20%-plus annually.
10 stocks we like better than Taiwan Semiconductor Manufacturing ›
Shares of Taiwan Semiconductor Manufacturing Company (NYSE: TSM) jumped 3% through 2:35 p.m. ET after CEO C.C. Wei told shareholders at the company's annual general meeting that TSMC expects to earn "record profit" in 2025.
Of particular interest to investors, Wei said he's "not afraid" that President Donald Trump's tariffs turmoil will keep TSMC from reaching this goal.
"The impact of tariffs on TSMC is not direct," Wei said. "Tariffs are paid by importers. However, tariffs will make prices higher and could drag down demand." Regardless, "overall AI demand is still very high" -- indeed, higher than the production capacity to fulfill it. Thus, if U.S. buyers pull back on buying semiconductors manufactured in Taiwan, well, there are always other buyers elsewhere.
Long story short, Wei is confident his company can continue growing sales in the mid-20% range despite tariffs threats. Because even if supply eventually meets demand for artificial intelligence applications, new markets are forming to create even more demand for the company's chips.
Which markets? "The chip demand for humanoid robots starts now," declared Wei.
So demand for TSMC's chips shouldn't be an issue. But should you demand to buy some TSMC stock?
Maybe.
On the one hand, a mid-20s growth rate compares favorably against a TSMC P/E ratio of only 24, suggesting TSMC stock is cheap. On the other hand, TSMC's free cash flow isn't quite as robust as its reported generally accepted accounting principles (GAAP) earnings suggest. The company reported $39.4 billion profit over the past year, but FCF was only $27.3 billion, meaning TSMC generated cash profit of only about $0.69 for each $1 in claimed profit.
With a price-to-free-cash-flow ratio of more than 31, TSMC still seems pricey to me.
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Why Taiwan Semiconductor Stock Popped Today was originally published by The Motley Fool
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Other markets also continued to rebound on tariff progress last month, with the UK's FTSE 100 (^FTSE) now up nearly 8% year-to-date, while the pan-European STOXX 600 (^STOXX) has advanced 9.3% so far this year. With that mind, here were the most popular stocks and funds with investors last month. Richard Hunter, head of markets at Interactive Investor, said: "May was an easier ride for investors, even though market movements continue to be dominated by tariff twists and turns." 'The early announcement of a trade deal between the US and the UK gave rise to hopes that others could follow in short order, although subsequent events put paid to that optimism," he said. "A court ruling that the tariffs were not legal was replaced by a temporary removal of that blockage, while in the final weekend in May the aggressive rhetoric towards other trading partners resumed." Oil major BP (BP.L) topped the most bought lists for Interactive Investor, Hargreaves Lansdown and Bestinvest, with investors appearing to take advantage of the fact that shares are trading at their lowest point in three years. Shares fell after BP (BP.L) reported that profits almost halved in the first quarter. The company reported an underlying replacement cost profit – a key metric used as a proxy for net profit – of $1.38bn (£1.02bn), falling short of the $1.53bn forecast by analysts polled by LSEG (LSEG.L). The figure also marks a 49% decline from the $2.7bn posted in the same period last year. Read more: UK 'bargain' stocks that have outperformed the market long-term The company has come under pressure from the decline in oil prices, which have fallen amid concerns that a tariff-induced economic slowdown would weigh on demand for fuel. Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "BP's shares came under more pressure after its first set of quarterly results since its strategy reset unimpressed the market. "Despite reductions in costs and investment expenditure, debt moved in the wrong direction. But plenty of investors appear hopeful that the transformation plan will start to bear fruit and have been buying shares in the hope of an uplift." Chipmaker Nvidia (NVDA) remained another top 10 stock buy for investors on Interactive Investor, Hargreaves Lansdown, Robinhood (HOOD) and Bestinvest's platforms. Following a drop in Nvidia's (NVDA) share price in April, as Trump's trade war ramped up, the stock recovered in May amid the reprieve on tariffs. The stock then climbed higher towards the end of the month, after the company unveiled a number of new technologies at the Computex tech expo in Taiwan, including developments around its robotics capabilities, among other updates. Stocks: Create your watchlist and portfolio This came a week before the Nvidia's (NVDA) update on its first quarter performance, which have become the most highly anticipated results of the earnings season, given the chipmaker's role as an enabler of AI. For the first quarter, Nvidia (NVDA) posted revenue of $44.1bn, which topped estimates of $43.3bn, though earnings per share of $0.81 were below expectations of $0.93. Shares popped on the back of the results, despite Nvidia (NVDA) warning of a $4.5bn charge from controls on its exports of its H20 chips to China. Excluding this charge, Nvidia (NVDA) said that earnings per share would have been $0.96 for the first quarter. "There remains significant appetite for chip star Nvidia (NVDA), given the demand for its products to power the AI revolution keeps powering upwards," said Streeter. "The company beat revenue expectations again last month, despite fresh restrictions on its exports to China." Investors continued to put money behind defence stocks last month, a trade which has become popular as European governments have pledged to spend more on this area. FTSE 100-listed firm Rolls-Royce (RR.L) remained one of the most popular stocks for investors in May, appearing on the lists of Interactive Investor, Hargreaves Lansdown and Bestinvest. BAE System (BA.L) also appeared on Hargreaves Lansdown and Bestinvest's lists, as another UK-listed company in the sector. "There's an expectation that the EU-UK trade deal will open up deep new pools of funding for British defence companies, as efforts are made to counter the heightened threat from Russia," said Streeter. Investors also continued to invest in Strategy Incorporated (MSTR), the software firm which is the world's largest corporate holder of bitcoin (BTC-USD). "It was an up-and-down month for MSTR with bitcoin highs supporting the share price, only for valuation concerns to take the shine off the crypto rise," said Robinhood (HOOD) UK lead analyst Dan Lane. "Robinhood (HOOD) UK investors are keeping the faith for now, with Coinbase (COIN) on the radar too after being included in the S&P 500 index during the month." UK high street stalwart Marks & Spencer (MKS.L) was another stock that investors appeared to take the opportunity to snap up amid a knock to its share price. The stock was on the most bought lists of Interactive Investor, Hargreaves Lansdown, Bestinvest and AJ Bell (AJB.L) in May. "Marks and Spencer's (MKS.L) cyber-attack disrupted stores and online ordering, causing a 16% drop in shares before starting to recover mid-month," said Hargreaves' Streeter. "Sentiment has been helped by an update showing the retailer is fighting to restore its systems from a position of resilience after a 22% uplift in underlying pre-tax annual profit." Passive funds continued to dominate platforms most bought lists, with US and global funds accounting for many of investors' popular choices. Funds that appeared on multiple lists, included Vanguard FTSE Global All Cap Index (0P00018XAR.L) and HSBC FTSE All World Index (0P00013P6I.L), which are exposed to the Mag 7 tech giants, among other major global companies. Read more: Stocks that are trending today While markets did see a recovery last month, Hargreaves Lansdown head of fund research Victoria Hasler said that "volatility abounded in May, with more tariff drama, cyber attacks and economic uncertainty." "This led some investors to turn to active managers to navigate the difficult environment, and the Artemis Global Income fund topped our list of most bought funds," she said. "Income strategies generally tend to be a little more defensive than the market as a whole, and the Artemis fund has a value bias which could have attracted investors. The other active fund in the top ten was also a global offering – the Rathbone Global Opportunities fund." Read more: How next week's spending review could impact your finances What is the Pension Investment Review? Bank of England governor expects interest rates and pay to decrease this yearError in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
