TSM Stock Forecast: Raise Your Winning Bets On Taiwan Semiconductor

motek 1This TSM stock price forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.


  • Taiwan Semiconductor Manufacturing Company’s stock has a 1-year price return of more than 38%.
  • I’m still endorsing TSM as a buy.  The recent out of court settlement with GlobalFoundries insured that chip foundry customers of Taiwan Semiconductor have nothing to worry about.
  • Smartphone sales are peaking but stronger PC shipments is a tailwind for Taiwan Semiconductor.
  • The absence of competition from GlobalFoundries is a tailwind for TSM.
  • Next year’s rollout of 5-nm process will increase TSM’s chip manufacturing lead over Intel and Samsung.

My November 25, 2018 buy recommendation for Taiwan Semiconductor Manufacturing Company (TSM) was very profitable. TSM’s one-year price return is +38.34%. The record revenue ($9.40 billion, up 10.75 year-over-year) in Q3 and the optimistic Q4 2019 guidance (projected to be between $10.2 to $10.3 billion revenue) convinced me that TSM can hit $56 – $58 by January/February 2019.

TSM stock forecast
(Source: Seeking Alpha)

My own Q4 estimate is $10.4 billion in revenue and EPS of $0.72.  If this prediction proves true, TSM will likely end FY 2019 with $2.16 EPS. Consequently, TSM’s price could breach $56 after its January 16, 2020 Q4 ER. Assuming a Forward P/E ratio of 26x, TSM should be worth $56.16.

TSM deserves a high Forward P/E valuation. Its leadership in 7-nanometer fabrication process technology keeps it ahead of Intel (INTC) and other rivals. TSM is at the forefront of the growing $481 billion/year semiconductor industry. The long-term prosperity of Taiwan Semiconductor assured. It persists as the no. 1 pure-play foundry service company.

TSM stock forecast

Sustainable Growth From Smartphones

The expected strong Q4 sales of the iPhone 11 can boost Taiwan Semiconductor’s topline and bottomline.  Apple will likely ship out up to 90 million iPhone 11 phones by end of December.  TSM still remains the exclusive A13 processor supplier for the new iPhones/iPads. This is very important because smartphone-related chips foundry contracts account for 49% (or $4.61 billion) of Taiwan Semiconductor’s Q3 revenue of $9.40 billion.

TSM stock forecast
(Source: Open Innovation Platform)

Smartphone-related foundry contracts also grew +33% quarter-over-quarter in Q3. This growth spurt coincided with the iPhone 11’s September launch. Taiwan Semiconductor obviously supplied a lot of A13 processors to Apple during the June to September quarter.

The holiday shopping season will boost demand for electronic/digital products. Because GlobalFoundry abandoned its 7-nanometer process, Taiwan Semiconductor can continue its pseudo-monopoly on 7-nanometer semiconductor foundry contracts. Yes, Samsung (SSNLF) has started mass production of its 7-nm EUV (Extreme Ultraviolet lithography process) smartphone processors. However, I believe Samsung’s 7-nanometer chip production capacity is still for its in-house use only.

Samsung is also still playing catch-up. Taiwan Semiconductor’s N7+ (or 2nd-generation 7-nanometer) EUV already started mass production in Q2 2019. N7+ yields 15 to 20% more density than TSM’s first generation N7. The N7+ process technology will therefore attract more smartphone vendors who outsource production of their ARM-based processors. Further, Taiwan Semiconductor has already confirmed that its 5-nanometer process technology will commence mass production by 2nd quarter of 2020. This should be right on time for Apple’s A14 processor for 2020 iPhone/iPad products.

Aside from Apple, Taiwan Semiconductor is also the foundry partner of Huawei – the world’s persistent no.2 vendor of smartphones. IDC’s chart below shows Q3 2019 still produced a positive year-over-year growth in global smartphone shipments. More than 358.3 million smartphones were shipped out in Q3. The massive market for smartphones remains a strong tailwind for TSM.

TSM stock forecast
(Source: IDC Quarterly Mobile Phone Tracker, Q3 2019, November 7, 2019)

Qualcomm (QCOM) is also a 7-nanometer customer of Taiwan Semiconductor. Qualcomm’s current flagship smartphone processor, the Snapdragon 855 is being mass produced by TSM since Q1 of this year. The Snapdragon 855 is usually found in high-end Android phones not made by Samsung or Huawei.

The upcoming deluge of 5G-enabled phones and tablets will also keep Taiwan Semiconductor’s 7-nanometer production at full capacity. The increasing deployment of 5G infrastructures by the world’s leading telecom companies will compel smartphone vendors to accelerate their 5G plans. Stronger demand for 5G-compatible 7nm smartphone processors will likely help TSM earn almost $3.47 billion from them in Q4 2019.

TSM stock forecast
(Source: Semiconductor Digest)

Stronger PC Sales This Holiday Quarter

Computer-related chip production accounts for 29% of TSM’s revenue. TSM is a worthy investment when more computers are being sold. Microsoft (MSFT) has set January 14, 2020 as the day it will end support for Windows 7.  This should contribute to the emerging trend of growing PC sales.

Many individuals and corporate buyers will likely purchase new Windows 10-optimized desktop and laptops this last quarter. Taiwan Semiconductor produces the 7-nanometer processors of Advanced Micro Devices (AMD). It should benefit from strong Christmas quarter sales of Windows 10 computers.

Since all of them use AMD Ryzen CPU or Radeon GPUs, all top global vendor of personal computers and servers are foundry clients of TSM.  Lenovo (LVGY), HP Inc. (HPQ), Dell (DELL), Apple, and Acer contribute to the success of Taiwan Semiconductor.

TSM stock forecast
(Source : IDC Quarterly Personal Computing Device Tracker, October 10, 2019)

TSM Stock Forecast: Conclusion

The recent settlement and cross-licensing patents agreement with GlobalFoundries should no longer hinder TSM’s fast-growing 7-nanometer and 5-nanometer chip foundry business. The elimination of GlobalFoundries to sue Taiwan Semiconductors and its foundry customers is a giant tailwind for TSM. I expect 7-nanometer and 5-nanometer related foundry services to become an $8 to $10 billion/year growth driver for Taiwan Semiconductor.

Zero competition from GlobalFoundries (it still has no plan to upgrade to 7 or 5-nanometer) should help TSM maintain its high net income margin of more than 32%.

TSM stock forecast
(Source: Seeking Alpha)

I Know First TSM Stock Forecast

My reiterated buy rating for TSM is supported by its very bullish one-year stock market predictions TSM stock forecast from I Know First stock algorithm. There’s a very high probability that TSM will trade higher than $56 before November 2020. I Know First stock scanner boasts a very high one-year predictability score on Taiwan Semiconductor’s stock – 0.82. It means it has outstanding algorithmic trading history of correctly predicting the upside movement of TSM over a 12-month period.

TSM stock forecast

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