Since going public in 2020, Palantir Technologies’ stock has witnessed a significant surge, increasing by nearly 1,000%. However, some analysts now deem the stock as overvalued, noting that it currently trades at a trailing price-to-sales ratio of 79. They argue that even with rapid growth in its artificial intelligence (AI) services, it would take Palantir decades to justify such a high valuation.
In contrast, Taiwan Semiconductor Manufacturing Company (TSMC), identified as a promising AI stock, appears well-positioned for success in the coming years. Renowned for manufacturing computer chips, TSMC provides crucial support to investors seeking long-term gains. Nvidia, the leading AI chipmaker with over $100 billion in annual revenue projected for 2024, outsources its chip production to TSMC, which remains the dominant player in semiconductor manufacturing. This reliance underscores the pivotal role TSMC plays in the AI industry.
Due to increased demand for AI computer chips, TSMC’s factories are operating at full capacity. This surge contributed to a rise in revenue to $90 billion and a remarkable 58% year-over-year growth in TSMC’s High-Performance Computing segment in 2024. Management anticipates continued growth into 2025, driven by revenue from cloud and AI customers. TSMC is capturing market share from competitors like Intel, which could accelerate its consolidated revenue growth.
The future outlook for TSMC appears robust, with the overall chip market projected to reach $1 trillion in annual sales by 2030. Analysts, alongside industry leaders like ASML, anticipate that AI computer chips will account for 40% of this market, equating to $400 billion in annual sales. Although not all sales will benefit TSMC, the company is expected to experience favorable long-term growth, potentially surpassing $100 billion in revenue by 2025.
TSMC’s management continues to prioritize long-term resilience by diversifying geographically beyond Taiwan, where its main manufacturing facilities are located. Given Taiwan’s geopolitical tensions with China, TSMC has initiated plans to bolster its global operations, including building a factory in the United States and pledging $165 billion for further developments.
Currently, TSMC shares are considered reasonably priced, with a price-to-earnings (P/E) ratio below the S&P 500 index. It trades at a trailing P/E of 24.6 compared to the S&P 500 average of 28.5. Over five years, the company’s net income has increased by 179%, and there is an expectation of at least 100% earnings growth by 2030. This potential could reduce the P/E ratio to 12, presenting a compelling opportunity for investors to secure shares in a market leader like TSMC.
Overall, TSMC serves as a cornerstone of the AI market, essential to maintaining the supply of advanced computer chips, positioning it as a profound asset within investor portfolios.
