On Wednesday, BofA Securities maintained its Buy rating on Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) stock. The firm's analyst highlighted that while Intel (NASDAQ:INTC), a significant client for TSMC, has announced intentions to reduce its reliance on outsourced wafers, the impact on TSMC's long-term growth is not a major concern.
At an event on April 2, 2023, Intel revealed its strategy to decrease the percentage of its outsourced wafers from 30% to around 20% over time, starting in 2026. This move is part of Intel's broader efforts to enhance its foundry capabilities. The analyst noted that although this could imply a reduced contribution to TSMC's business, the foundry's structural growth outlook remains solid.
Several factors support the optimism for TSMC's future. First, TSMC's long-term guidance of a 15-20% compound annual growth rate (CAGR) has accounted for a limited contribution from Intel. Additionally, TSMC is expected to increase its market share and benefit from the higher semiconductor content in the artificial intelligence (AI) era.
The analyst also pointed out that it is still uncertain whether Intel can significantly improve product performance and cost as it has planned. Therefore, the slower progress of Intel's Foundry could potentially pose an upside risk for TSMC, rather than a concern.
In conclusion, BofA Securities has reaffirmed its confidence in TSMC's growth prospects, maintaining a Buy rating on the stock despite the potential changes in Intel's outsourcing strategy. The firm believes TSMC is well-positioned to continue its growth trajectory in the semiconductor industry.
InvestingPro Insights
With BofA Securities maintaining a positive outlook on Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM), current InvestingPro data reinforces the strength of TSMC's financial position. The company boasts a robust market capitalization of $639.38 billion, underpinning its industry dominance. The P/E ratio, a measure of the company's current share price relative to its per-share earnings, stands at 24.43, with a slight adjustment to 24.11 when looking at the last twelve months as of Q4 2023. This indicates a valuation that is in line with industry norms.
Furthermore, TSMC's gross profit margin for the same period is an impressive 54.36%, showcasing the company's ability to maintain profitability. Investors will also note TSMC's solid return on assets of 15.96%, which reflects efficient management of its assets to generate earnings. Additionally, the company has shown a commitment to returning value to shareholders, with a dividend growth of 23.75% in the last twelve months as of Q4 2023.
For those looking to delve deeper into TSMC's financial health and future prospects, InvestingPro offers exclusive insights. There are numerous additional tips available on the platform that can provide further guidance. For instance, understanding the significance of TSMC's recent price total returns or its fair value estimations could be crucial for making informed investment decisions. To access these valuable insights, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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