Taiwan Semiconductor Manufacturing: Growth Miracle with Potential

Investors in Taiwan Semiconductor Manufacturing, or TSMC, have experienced significant gains over the past five years. Shares of the world's largest semiconductor manufacturer rose by an impressive 258%, far outpacing the S&P 500 Index, which gained 81% over the same period. However, TSMC's success story may continue. A look at the development of the semiconductor industry shows why purchasing and holding this stock could be worthwhile for the next five years. In 2018, the estimated value of the global semiconductor market was $469 billion according to the Semiconductor Industry Association. By 2023, this value had risen to $527 billion, reflecting an annual growth rate of just 2.3%. The sluggish growth was due to weaknesses in the smartphone and PC markets. But the coming years look promising, largely thanks to the surge driven by Artificial Intelligence (AI), which is fueling increased demand for chips across various industries. Analyses by Mordor Intelligence forecast robust growth in the semiconductor industry with an annual growth rate of almost 11% until 2029, potentially leading to annual revenues of $1.2 trillion. AI plays a central role here, with the market for AI chips expected to grow annually by 38% over the next decade. AI is also boosting smartphone and PC sales. According to market researcher Canalys, sales of AI-capable PCs could more than quadruple from 48 million to 205 million units by 2028, while the market for generative AI smartphones is projected to grow annually by 28% until 2030. The increased demand for chips in smartphones, PCs, data centers, and other applications benefits TSMC. The Taiwanese company holds an impressive 62% market share and manufactures chips for renowned companies such as Nvidia, Intel, Qualcomm, and Advanced Micro Devices. TSMC's latest quarterly figures show that the company is further expanding its market share. In the second quarter of 2024, revenue rose by 33% compared to the previous year, reaching $20.8 billion. Analysts expect a revenue increase of nearly 25% in 2024, amounting to $86.4 billion. By comparison, the global semiconductor market is projected to grow by 13% in the same year, indicating that TSMC is significantly outperforming the market. With an expected market volume of $236 billion for the semiconductor manufacturing market by 2030, TSMC could continue its solid growth. If the company maintains its 60% market share by then, its annual revenue could reach $142 billion by the end of the decade—double the revenue of 2023, which stood at $69.4 billion. According to analysts' forecasts, TSMC's revenue could rise to $124.4 billion by 2026, representing an annual growth rate of 21% compared to 2023. Should the growth rate for the subsequent two years remain at 15%, revenue could climb to $164 billion by 2028. The revenue increase of 136% over the next five years could surpass past performance and reward stock prices accordingly. Thus, investors may do well to continue their engagement with this semiconductor giant.