Contemplating Purchasing Taiwan Semiconductor Manufacturing Shares Prior to January 20?
Curious investors might be pondering the effects of the 2024 election outcomes on Taiwan Semiconductor Manufacturing Company Limited (TSMC) (TSM 4.98%). With its status as the world's leading and most advanced semiconductor manufacturer, TSMC occupies a pivotal position within a vital sector.
While the incoming Trump administration underscores the importance of domestic manufacturing, this could potentially position TSMC as a target. Consequently, prospective chip stock investors should potentially ponder whether they should invest before the January 20 inauguration.
Political Landscape of TSMC
Placed in a geopolitically delicate situation, TSMC faces a political predicament, with China aiming to seize control of its homeland in a dispute dating back to before the inception of the semiconductor industry. The consequences of this confrontation extend beyond Taiwan, impacting the global scene, as around two-thirds of the world's chip production is located in Taiwan.
Furthermore, as per research conducted by the Semiconductor Industry Association (SIA), only 12% of chip manufacturing was executed in the U.S. in 2020, a decrease from approximately 40% in 1990. This situation led the Biden administration to allocate approximately $53 billion in chip manufacturing subsidies through the CHIPS Act.
Despite planning to establish a facility in Arizona, TSMC's manufacturing there accounts for under 4% of the company's total production. It is questionable whether this modest level of domestic production would appease an administration aiming to restore America's former manufacturing prominence.
Reasons Why TSMC May Thrive Regardless
Despite these political concerns, U.S. corporations may continue sourcing from TSMC due to a compelling factor: They have no alternatives.
Taiwan is responsible for approximately 92% of all wafer production capacity for the most advanced chips, according to the SIA. Various desired artificial intelligence (AI) applications rely on these sophisticated chips, meaning foregoing transportation from Taiwan would result in technological backsliding for the U.S.
Moreover, other companies can offer limited assistance to the administration. Samsung and Intel are constructing fabs in the U.S., utilizing the same advanced extreme ultraviolet lithography (EUV) machines supplied by ASML. Nevertheless, TSMC has maintained its technical edge over competitors, even those with the same EUV machinery, obliging chip companies and governments to continue cooperating with TSMC.
Additionally, beefing up production capacity is a multi-year endeavor. Samsung does not anticipate commencing production at its Texas fab until 2026, while Intel is unlikely to manufacture chips in Ohio before 2027 or 2028. Attending to the industry's current situation seems inevitable for the Trump administration.
Intriguingly, potential investors have a justification to invest in TSMC stock despite the inherent risks. Throughout the first nine months of 2024, the company witnessed a surge in revenue of $63 billion, representing a 32% increase compared to the same period in 2023. Moreover, the company's operating expense growth slowed in relation to revenue. As a consequence, the company's net income attributable to shareholders rose by 33% compared to the previous years.
Furthermore, amid this profit growth, TSMC's price-to-earnings ratio (P/E ratio) stands at 30, a lower earnings multiple than its three largest customers: Apple, Nvidia, and Broadcom. This may attract some investors to TSMC stock despite the prevailing risks.
Should Investors Buy TSMC Stock Before Jan. 20?
In conclusion, TSMC stock remains a viable investment option before January 20.
Indeed, a Trump administration will seek an increase in U.S. manufacturing, which may prompt skepticism towards TSMC. However, Faced with TSMC's indispensable role in the tech industry and, by extension, the global economy, political forces may not sideline this company. Even if a competitor emerged equal or superior to TSMC, it would take several years to establish the necessary manufacturing facilities to meet any potential production goals.
Lastly, the stock trades at a cheaper valuation compared to its largest clients, making TSMC stock an appealing investment choice for investors regardless of the administration's sentiment towards the company.
In light of the potential focus on domestic manufacturing by a Trump administration, some investors might be contemplating whether to invest in TSMC before the January 20 inauguration, as the company's significant role in the global semiconductor industry could make it a target.
Despite the political landscape, TSMC's unique position as a global leader in advanced chip production and its irreplaceable role in supplying sophisticated chips to many tech companies could potentially protect it from significant political challenges.
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