The TSMC share price is volatile. Is this tech stock a buy?

The global semiconductor shortage is causing widespread disruption so is TSMC, the world’s biggest chip manufacturer, worth investing in?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Taiwan Semiconductor Manufacturing Company (NYSE: TSM), also known as TSMC, has been in the news a lot lately due to global shortages in semiconductors. These are the computer chips used in mobile devices, electric vehicles, cash registers, fighter jets and kitchen appliances. In fact, anything that runs online contains a semiconductor. The shortage has been caused by supply chain problems due to the pandemic and production problems at manufacturing facilities.

TSMC financial update

This week TSMC released an update reporting that its revenue for January through April rose 16% year-on-year.

This hasn’t had much impact on the share price overall. Last year, the TSMC share price soared, but it has only risen 1% year-to date. It’s also now down 20% from its 52-week-high. It has a price-to-earnings ratio of 30 and dividend yield of 1.5%.

TSMC is a serious heavyweight in the semiconductor market, with a market cap of $551bn. Its main competitors are Samsung, with a $480bn market cap, Intel which is worth around $222bn, and Qualcomm at $144bn.

TSMC counts Apple as a partner and is helping to create its micro-OLED displays for use in wearable augmented reality devices.

The company expects its capital expenditure (capex) for the next three years to come in around $100bn. It will spend this on land, factories, and equipment. Its capex cost for 2020 was $17.4bn, so this projection is a considerable jump. I find this reassuring as it tells me the company is ploughing money into solidifying its position and growing.

TSMC ended Q1 with cash and marketable securities of $28bn, while its debt level is under $10bn. This gives it a considerable free cash flow balance.

Risks to shareholders

Chip shortages are expected to continue for some time, possibly up to 18 months. This could put pressure on the TSMC share price, so volatility is to be expected.

There’s also mounting pain in the global tech sector as financial markets pull back. The Taiwan stock exchange was down 6% last night compounded by virus worries. TSMC has a dual-listing in Taiwan and New York.

Then there’s also geopolitical pressure coming from the US and China. The US is looking to bring semiconductor manufacturing home, as are China and Europe. Meanwhile, additional political tensions rage on between Taiwan and China.

There’s no doubt this rising domestic pressure will raise the likelihood of increased competition. Soaring demand is already encouraging other companies to up their chip manufacturing efforts. Samsung has said it’s spending $116bn on its next-generation chip business, and Intel is investing $20bn.

Nevertheless, while Taiwan would prefer to keep its chip manufacturing domestic, TSMC is beginning to venture further afield. It has plans to build a state-of-the-art wafer fabrication plant in Arizona and intends to install new production lines at its existing facility in Nanjing, China, to produce chips for car makers.

I think the global chip shortage has shown us how vital a component chips are in so much of our tech. The arrival of 5G will further compound that. For that reason, I’d happily add shares of TSMC to my Stocks and Shares ISA because it’s a clear leader in the space and I think it’s got a long growth opportunity ahead.

I do currently have access to this stock through my holding in the Fidelity Asian Special Situations fund, of which TSMC has an 8.9% weighting.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kirsteen owns shares in the Fidelity Asian Special Situations fund. The Motley Fool UK owns shares of and has recommended Apple, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool UK has recommended Intel and recommends the following options: short March 2023 $130 calls on Apple, long January 2023 $57 calls on Intel, short January 2023 $57 puts on Intel, and long March 2023 $120 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »

Electric cars charging at a charging station
Investing Articles

Big news for Tesla stock investors!

Tesla has just quietly dropped a key target it set for itself just a few years ago. What does this…

Read more »