Intrinsic Value Taiwan Semiconductor Manufacturing Company Limited (TSM)

• Previous Close: $243.41
• Intrinsic Value: $250.99
• Upside potential: +3%

Stock Valuation Context

Business Model And Market Position

Taiwan Semiconductor Manufacturing Company (TSMC) is the world's largest dedicated semiconductor foundry, specializing in advanced process technologies for a diverse client base, including leading fabless chip designers like Apple, NVIDIA, and Qualcomm. The company operates in the highly capital-intensive semiconductor manufacturing sector, where its pure-play foundry model allows it to focus solely on producing chips for others without competing in chip design. TSMC dominates the global foundry market with over 50% share, leveraging its technological leadership in cutting-edge nodes (e.g., 3nm and 5nm) and unparalleled scale. Its revenue model is built on long-term customer agreements and technology leadership premiums, with pricing power derived from its unmatched production consistency and yield rates. The company serves high-growth end markets such as smartphones, high-performance computing, IoT, and automotive, positioning it at the center of global semiconductor demand. TSMC’s ‘technology leadership, manufacturing excellence, and customer trust’ strategy has solidified its role as the backbone of the global tech supply chain, making it indispensable for advanced logic semiconductors.

Revenue Profitability And Efficiency

In FY 2024, TSMC reported revenue of NT$2.89 trillion (approx. $92.5B), with net income reaching NT$1.17 trillion (approx. $37.5B), reflecting a robust net margin of 40.5%. The company’s operating cash flow of NT$1.83 trillion underscores strong earnings quality, though capital expenditures of NT$956 billion highlight the cyclical reinvestment requirements of leading-edge semiconductor manufacturing. Diluted EPS stood at NT$226.25, demonstrating efficient earnings distribution across its 5.19 billion shares outstanding.

Earnings Power And Capital Efficiency

TSMC’s earnings power is underpinned by its technological moat and pricing power, with return on invested capital (ROIC) consistently exceeding industry averages due to high utilization rates and premium pricing for advanced nodes. The company’s capital efficiency is tempered by the need for massive cyclical investments in next-gen fabs (e.g., $40B+ annual capex), but its ability to monetize these investments through early-mover advantages in process technology ensures long-term profitability.

Balance Sheet And Financial Health

TSMC maintains a strong balance sheet with NT$2.13 trillion in cash and equivalents against NT$986 billion in total debt, providing ample liquidity for its aggressive capex cycle. The conservative leverage profile (net cash position) and strong cash flow generation ensure financial flexibility, critical for navigating the capital-intensive nature of semiconductor manufacturing and geopolitical uncertainties.

Growth Trends And Dividend Policy

TSMC’s revenue growth is driven by secular demand for advanced semiconductors, particularly in AI/data centers and 5G. The company has a track record of steady dividend payments, with a FY 2024 dividend of NT$2.47 per share, though payout ratios remain modest (~30%) to prioritize reinvestment in capacity and R&D. Long-term growth is tied to its ability to maintain process leadership and geopolitical stability in Taiwan.

Valuation And Market Expectations

TSMC trades at a premium to peers, reflecting its technological leadership and irreplaceable role in the global semiconductor ecosystem. Market expectations are anchored to its ability to sustain node transitions (e.g., 2nm by 2025) and manage geopolitical risks, with valuation metrics pricing in mid-teens earnings growth over the next decade.

Strategic Advantages And Outlook

TSMC’s strategic advantages include its process technology leadership, economies of scale, and deep customer relationships. The outlook remains positive given structural demand for advanced chips, though geopolitical risks and industry cyclicality warrant monitoring. Diversification of manufacturing locations (e.g., U.S. and Japan fabs) may mitigate some risks while supporting long-term growth.

Sources

TSMC FY 2024 Annual Report, Bloomberg