10 Reasons to Buy and Hold This Tech Stock Forever

Globe and Mail

2 days ago

Key Points
Taiwan Semiconductor Manufacturing (TSMC) is by far the largest provider of ultra-advanced semiconductors.
Management estimates revenue from artificial intelligence (AI) accelerators will grow in the mid-40% range until 2029.
The company has steadily increased its capital investments to account for growing demand.
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Semiconductor (chip) manufacturing giant Taiwan Semiconductor Manufacturing (NYSE: TSM) recently joined the elite trillion-dollar club, becoming one of only 10 companies with a market cap of over $1 trillion (as of July 8).
The company, also known as TSMC, has experienced a lot of growth in recent years, and its momentum is still going strong. In fact, it's one of my favorite stocks right now, and I plan to hold it for the long haul. Here are 10 reasons why.
1. TSMC is the undisputed market leader
When it comes to semiconductor manufacturing, there's TSMC, and there's everyone else. TSMC has around a 70% market share of the semiconductor foundry market, far exceeding its next closest competitors.
There's no clear path for any competitor to get close to TSMC's market share anytime in the foreseeable future.
2. The tech world relies heavily on TSMC
TSMC doesn't sell products directly to consumers, but its chips are found in many of the electronics they use daily. TSMC's customers include Apple (smartphones, tablets, etc.), Nvidia (GPUs), Tesla (self-driving technology), AMD (CPUs), and dozens of other tech heavyweights.
3. TSMC has shown strong financial performance
In the first quarter (Q1), TSMC's revenue was $25.5 billion, up 35% year over year (YOY). Its net income increased 60% YOY (in local currency), continuing its impressive financial performance over the past five years.
Data by YCharts.
TSMC's customers typically sign long-term contracts, helping to keep its revenue predictable as well.
4. Artificial intelligence (AI) chip demand is skyrocketing
TSMC makes most of the high-powered chips essential to the AI ecosystem. Smartphones used to be the largest segment for TSMC's business, but the new AI demand has shifted the landscape. Managment estimates revenue growth from AI accelerators will have a compound annual growth rate (CAGR) in the mid-40% range until 2029.
5. The semiconductor industry has a high barrier to entry
Developing a semiconductor manufacturing plant is far from easy, which is why some of the world's richest, most technologically advanced companies have yet to build their own and continue to rely on TSMC.
It takes a lot of invested capital, complex technology, and years of process improvements to get to a point where it works efficiently. This helps TSMC keep its competitors at a distance.
6. TSMC is expanding its business beyond Taiwan
One concern with TSMC's business has been the geopolitical tension between Taiwan and China. In light of this risk, the company has begun expanding its operations outside Taiwan.
TSMC currently has, or will have soon, manufacturing plants in Taiwan, the U.S., Germany, and Japan.
7. TSMC has a dividend that complements its stock price growth
I wouldn't consider TSMC a dividend stock, but it does offer a dividend that complements its recent share price growth. Its dividend yield is around 1.17% (as of July 8), which is lower than the S&P 500 average. However, its average dividend yield over the past three years is higher than the S&P 500's.
Data by YCharts.
The modest dividend can still contribute to your total returns over the long haul.
8. Companies rely almost exclusively on TSMC for advanced chips
Semiconductors are categorized by the manufacturing process node, measured in nanometers (nm) -- such as 7nm, 5nm, 3nm, and the upcoming 2nm. The smaller the node, the more powerful and advanced the semiconductor is.
TSMC effectively has a monopoly on manufacturing and selling the world's most advanced semiconductors. Other companies cannot match the efficiency of TSMC and the scale at which it can build them.
9. TSMC is committed to investing in continued growth
TSMC has consistently made investments to grow its business, but it has stepped this spending up a notch with the rising demand for AI chips. In 2024, TSMC's capital expenditures totaled just over $30 billion. This year, it expects this number to increase to between $38 billion and $42 billion.
Data by YCharts.
TSMC noted that the higher capital spending is directly correlated to its growth opportunities, which should be music to investors' ears.
10. TSMC has stood the test of time
When you're investing in a company for the long haul, you want one that has shown it can stand the test of time. Since 1987, TSMC has navigated various economic cycles, the introduction of new technologies, and geopolitical tensions.
During each step, it has adjusted and positioned itself for long-term growth, and there's little reason to believe it won't continue to do so.
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