Taiwan Semiconductor Manufacturing Company Navigating Geopolitical And End-Market Turbulence Quite Well

I said in my last article on Taiwan Semiconductor Manufacturing Company (TSM) ("TSMC") that I'd be more bullish on the shares below $50, and investors did, in fact, get the chance to buy below $50 before the stock lifted off, buoyed by improving sentiment on wafer volumes in 2020 as well as a hard turn toward technology stocks in recent months. With that, TSMC has done a little better than the SOX Index, while a few equipment/supply names like ASML (ASML) and FormFactor (FORM) have done even better.

My only real concern around TSMC remains the elevated level of long-term margin expectations. I don't think there are really any credible concerns about the company's ability to ramp 3nm or 2nm, nor maintain a strong competitive position relative to Samsung (OTC:SSNLF) and other fabs, and I believe that the year-to-year shifts in customer mix are just something that goes with the business. Still, I do see some risk to the sheer magnitude of margin improvement that seems baked into the valuation. While today's price would appear to offer "high-mid-single-digit" long-term annualized return prospects, which isn't bad for a quality tech name, I'd prefer to wait for another pullback, as those aren't uncommon in this stock's history.

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Taiwan Semiconductor Manufacturing Company Navigating Geopolitical And End-Market Turbulence Quite Well