TSMC: Undervaluation Persists Ahead Of Q2 2024

Core Thesis - TSMC's stock is rated as a "strong buy" with a fair price estimate of $231.78, indicating a 31.5% upside from the current price of $176.23, and a potential future price of $400.85 for 2029, suggesting annual returns of 31.5% throughout that year [2][20]. Financial Performance - TSMC reported Q1 2024 earnings of $1.38 per share, beating consensus estimates by 4.51%, and revenues of $18.87 billion, exceeding expectations by 4.77% [2]. - The company's fair price estimate has slightly decreased from previous evaluations due to changes in financial conditions, but it remains significantly higher than the current stock price [19]. Market Position - TSMC holds a dominant market share of 61%, far surpassing its closest competitor, Samsung, which has an 11.3% market share [4]. - TSMC controls approximately 90% of the manufacturing of AI chips, highlighting its critical role in the semiconductor industry [4]. Growth Strategy - TSMC's growth strategy focuses on expanding and innovating its manufacturing processes to maintain its market dominance, which is essential in the capital-intensive semiconductor industry [3]. - The company is diversifying its operations outside of Taiwan to mitigate risks associated with geopolitical tensions [3]. Industry Outlook - The global semiconductor market is projected to generate revenues of $553 billion in 2023 and $736.4 billion by 2027, reflecting a compound annual growth rate (CAGR) of 6.3% [5]. - The foundry services market, specifically, was valued at $106.8 billion in 2022 and is expected to grow at an 8.1% CAGR through 2032, reaching $231.5 billion [5]. Valuation Metrics - TSMC's weighted average cost of capital (WACC) is calculated at 10.53%, with depreciation and amortization (D&A) expenses tied to revenue at 25.45% [6][7]. - The projected net income for TSMC is expected to grow significantly, reaching $104.81 billion by 2029 [13]. Future Projections - The model suggests that TSMC's stock price could reach $400.85 by 2029, translating to annual returns of 31.5% from 2024 to 2029 [20]. - The company is expected to maintain a gross margin of 54.35% and continue hiring at a rate of approximately 5,660 employees per year [10][12].