Taiwan Semiconductor, the world’s largest contract chip manufacturer, has recently achieved a significant milestone by entering the exclusive $1 trillion valuation club. With only 10 companies worldwide reaching this level, Taiwan Semiconductor’s rise can be attributed to its continuous innovation and the growing demand for chips used in artificial intelligence (AI).
The company’s success can be attributed to its culture of staying at the forefront of technological advances. While other chip fabricators faced challenges in producing certain technologies, Taiwan Semiconductor has consistently been a leader in this field. Currently, the most advanced chip technology available is the 3 nanometer (nm) chips, which have contributed to 30% of the company’s overall revenue in Q3 of this year.
However, Taiwan Semiconductor is not resting on its laurels. The company is actively working on developing 2nm chips, which are projected to contribute to revenue starting in 2025 and experience significant growth in 2026. The demand for these chips is already surpassing that of previous generations, as they offer improved energy consumption, making them ideal for energy-intensive tasks like AI processing and smartphones with longer-lasting batteries.
The surge in AI-related products has exceeded management’s expectations, with revenue expected to triple this year and make up a significant portion of overall revenue. This strong growth projection aligns with management’s guidance of a 15% to 20% compound annual growth rate (CAGR) over the next several years, outperforming the market’s average CAGR of 10%.
From a valuation perspective, Taiwan Semiconductor’s stock is reasonably priced compared to the S&P 500’s forward price-to-earnings (P/E) ratio. With strong growth prospects ahead, the company remains an attractive investment opportunity.