Taiwan Semiconductor Manufacturing Stock Has 28% Upside, According to 1 Wall Street Analyst

The chip industry is bottoming out, setting the stage for growth in 2024.

Shares of Taiwan Semiconductor Manufacturing (TSM -0.90%) are trading up 34% year to date, and Susquehanna analyst Mehdi Hosseini sees more upside now that the chip industry is in recovery mode. The analyst maintained a positive (buy) rating on the shares, raising the price target from $160 to $180. The new target represents an upside over the next 12 months or so of nearly 28% compared to the current share price.

Here’s why the analyst might be right.

Taiwan Semiconductor anticipates robust growth in 2024

TSMC is in a lucrative position because it manufactures chips for other companies, including Advanced Micro Devices and Nvidia. With the chip industry expected to return to growth this year, TSMC is poised for a big year.

Management said on the fourth-quarter earnings call that business has bottomed out. Growing demand for artificial intelligence (AI) was cited as a catalyst for improving revenue growth. For the full year, management guided for revenue growth in the low- to mid-20% range.

Digging deeper into the company’s numbers, Hosseini said he sees strong demand driving higher average selling prices for TSMC’s products. This should boost TSMC’s earnings per share (EPS) toward $10, according to the firm’s estimate. However, it might take a few years for TSMC to hit that estimate. The Wall Street consensus has the company’s EPS reaching $9 in 2026.

Is TSMC stock a buy?

If TSMC reaches the analyst EPS estimate by 2026, the stock could be worth $230, assuming the shares are trading at a price-to-earnings ratio of 23, which is consistent with the stock’s previous five-year average valuation. So, considering TSMC’s recovery, the analyst’s price target of $180 seems reasonable for the next year or so, assuming there are no hiccups in the economy.

John Ballard has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

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