The remarkable rise of Taiwan Semiconductor Manufacturing Co
TSMC's shares have soared over 110% since October 2022, mirroring gains of key client Nvidia Corp
Yet, AI's contribution to TSMC's total revenue was only 6% in 2023r, sparking speculation about future demand and its impact on TSMC's valuation, Bloomberg reports.
Signs such as the stock's prolonged presence in overbought territory and its significant premium over average analyst price targets suggest the rally might be overstretched.
Even Morningstar Inc. analyst Phelix Lee, who holds one of the highest price targets for TSMC, expresses concern over the sustainability of AI demand over the next few years, questioning the feasibility of continuous, high-level data center investments.
TSMC anticipates AI revenue growing at an annual rate of 50%, expecting it to represent a high-teen percentage of its total revenue by 2027.
The company is expanding its global footprint, with new plants in the US, Japan, and Germany, aiming to meet the surging demand for AI chips in data centers of leading tech firms like Amazon.com Inc
Reports indicated that Apple Inc
However, geopolitical tensions, particularly between Washington and Beijing, and uncertainties surrounding the 2024 US presidential election could influence TSMC's growth trajectory.
There's also speculation on whether the strong order book reflects genuine end-demand for AI products or is driven by American clients stockpiling inventory amid policy uncertainties.
TSMC and Samsung Electronics Co
Samsung is set to receive over $6 billion to extend its operations beyond the previously announced $17 billion project in Taylor, Texas, while TSMC will likely receive more than $5 billion, Bloomberg reports.
Investors can gain exposure to TSMC via VanEck Semiconductor ETF
Price Action: TSM shares traded lower by 2.16% to $136.60 premarket on the last check Friday.