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Anyone who has invested in the artificial intelligence (AI) space for a while knows how good of an AI investment Taiwan Semiconductor Manufacturing (NYSE: TSM) is. However, TSMC just proved it once again with another blowout quarter, driven by impressive AI demand.
Still, the stock declined during the day after earnings were reported, so the market clearly wasn’t impressed. But I think this has more to do with the generic market outlook rather than the quality of TSMC’s results, as it proved once again how strong a business it is and gave a rosy outlook.
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I think this makes TSMC one of the top AI stocks to buy now, and if you don’t own any shares, now is a perfect time to buy.
Taiwan Semiconductor just raised future expectations
Taiwan Semiconductor is a giant in the chip world. When you hear about companies like Nvidia (NASDAQ: NVDA) or Apple (NASDAQ: AAPL) having their own chips, that’s partially true; they do. However, those two only design the chips; the actual fabrication work is outsourced to companies like Taiwan Semiconductor.
Taiwan Semiconductor is by far the largest chip foundry in the world, and handles nearly all of the volume Nvidia, Apple, and many others have. This gives Taiwan Semiconductor exposure to nearly all parts of the tech economy, which is clearly booming right now thanks to the massive ongoing AI buildout.
The biggest growth catalyst TSMC is feeling is from the AI segment, and a while back gave guidance that AI-related chip revenue would grow at a 50% compound annual growth rate (CAGR) from 2024 to 2029. An analyst on the TSMC Q3 earnings call asked for updated guidance regarding this outlook, and CEO C.C. Wei had this to say:
All I can say right now is the demand is very extremely robust, OK? And we did not see any sign of slowdown whether it’s high 50% CAGR, it doesn’t matter, it probably will be higher.
Clearly, there’s robust demand that’s rapidly expanding, and Wei noted that guidance may have been an under-projection, which is great news for shareholders. All of this adds up to TSMC’s great Q3 results, which resulted in 51% revenue growth in New Taiwan Dollars, but due to currency exchange rates, a 41% growth in US dollars. Profits grew at a faster rate, rising 69% year over year.
Those are impressive results for any company, and with the AI buildout showing no signs of slowing down, TSMC just showcased once again that it’s an incredible business. But is its stock a great buy now?
