Why Taiwan Semiconductor's Stock Prices Hit Record Highs

Key Points

• Taiwan Semiconductor stock could have a new way to give investors new all-time high prices, backed by fundamentals and global trends.
• After receiving $11.6 billion from the government, the company's positioning in the U.S. market is relatively sealed.
• Analysts see double-digit upside and further EPS growth, with little to stop the stock from new rallies.

As the two largest economies in the world, the United States and China, have been battling over ownership of the semiconductor manufacturing space, leading to access to the world’s latest technology and artificial intelligence capabilities, an opportunity is brewing for investors.

The opportunity comes as the U.S. sets aside a war chest to invest in the technology sector's supply chain power stance. The CHIPS and Science Act grants billions upon billions of dollars to semiconductor stocks with the potential to keep carrying the nation's most essential companies forward. Among these are Intel Co. NASDAQ: INTC, Samsung Electronics Co. OTCMKTS: SSNLF, and others.

However, one well-kept stock is making little headlines, as Wall Street wants to keep it all to itself. The stock is Taiwan Semiconductor Manufacturing Co. NYSE: TSM, which used to be a Warren Buffett favorite until the risks of a potential invasion in Taiwan by China led the oracle of Omaha to step away from the desk.

Unrivaled Positioning: Taiwan Semiconductor Stock's Impact on the Market

Taiwan Semiconductor is a major player in the global semiconductor supply chain positioning, as up to 60% of the worldwide foundry revenue goes through that company alone. Taiwan Semiconductor stock stood the scrutiny of the U.S. government in receiving part of the entire CHIPS act granting power.

This time, the company earned up to $11.6 billion in capital to help the U.S. onshore part of the global semiconductor supply chain, taking some geopolitical risks away from the Asian region.

Considering that stocks like Nvidia have helped propel the U.S. stock market to new all-time highs, the government may have looked for ways to keep the market – and its technological positioning – where it is. This is where Taiwan Semiconductor comes into play.

With Apple Inc. NASDAQ: AAPL and Nvidia Co. NASDAQ: NVDA as two of its biggest customers, Taiwan Semiconductor is a major player in the industry, one that cannot be left behind in recent—and future—government funding rounds. Investors should now consider whether the company can keep up its recent price action because the stock keeps making new all-time highs.

The Technical Edge: How Taiwan Semiconductor Stock Maintains All-Time Highs

Analysts at Susquehanna Bancshares saw it fit to slap a $180 per share price target on Taiwan Semiconductor stock, daring it to rally by an additional 8.8% from where it trades today.

More than that, Capital World Investors (the stock’s largest shareholder) boosted its stake in Taiwan Semiconductor by 1.7% as of May 2024, bringing its net investment up to $5.7 billion.

Price T Rowe Associates, the well-known asset manager, also boosted its position by 3.9% in the same period, bringing its net investment in Taiwan Semiconductor stock to $1.1 billion today.

Not even those betting against a potential artificial intelligence bubble are willing to risk their capital to prove a point. Taiwan Semiconductor stock’s short interest collapsed by 12.1% over the past month, allowing bullish investors to fill the gap left behind by retreating short sellers.

Considering that Taiwan Semiconductor stock’s dividend yield of 1% today is the lowest in over three years, the stock could be considered to have extremely high upside momentum, helping investors who can see the U.S. onshoring of semiconductor manufacturing through.

Taiwan Semiconductor Stock is Leveraging Financial Strength for Upward Movement

Looking at the company’s latest financial quarter, investors will find the dollar equivalent of $111.6 million in operating cash flow, which will remain as $105.4 million in free cash flow after accounting for the company’s roughly $6 million in capital expenditures (all amounts translated from Taiwan dollars).

With this steadily growing free cash flow, Taiwan Semiconductor’s management saw it fit to initiate a share buyback program to take as many as 3.3 million shares off the open market. Buying back stock near all-time highs is a vote of confidence from management pointing to the possibility of even higher prices coming shortly.

Now that the company's U.S. presence expansion is underway, and Nvidia's dominance is crystalizing with overtaking Apple in market capitalization terms, analysts' projections for up to 24.5% earnings per share (EPS) growth in the next 12 months could be correct.