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TSMC: Biden’s $6.6 Billion Boost Only the Start of Stock's Prolonged Bull?

Published 10/04/2024, 12:27
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  • Taiwan Semiconductor Manufacturing stock surged after revealing plans for a third factory in Phoenix, Arizona, marking a $65 billion investment.
  • Positioned at the center of the US-China chip conflict, TSMC's revenue surpasses rivals, underscoring its strategic significance.
  • President Biden's funding announcement under the Chips and Science Act reflects TSMC's pivotal role in US plans to boost semiconductor manufacturing in the country.
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  • Taiwan Semiconductor Manufacturing (NYSE:TSM) stock has been surging in recent days on the announcement of plans to construct a third factory at its US site in Phoenix, Arizona. This move boosts the company's investment in the industrial complex to over $65 billion.

    The investment marks a significant milestone, standing as the largest foreign direct investment in Arizona's history and the largest foreign direct investment in a greenfield project in US history.

    TSMC's Role in US-China Chip War Earns It Special Treatment

    TSMC plays a pivotal role in the US-China chip war. As the world's leading microchip manufacturer, it surpassed competitors Samsung (KS:005930) and Intel (NASDAQ:INTC) in revenue in 2023.

    This dominance in a market crucial to technology underscores its strategic importance. Notably, TSMC counts tech giants NVIDIA (NASDAQ:NVDA) and Apple (NASDAQ:AAPL) among its major customers, further cementing its influence.

    Given its strategic significance, TSMC receives special treatment in the United States. President Joe Biden recently announced that TSMC is eligible for up to $6.6 billion in direct funding from the US Department of Commerce under the Chips and Science Act. This legislation aims to bolster domestic research and semiconductor manufacturing.

    TSMC's President Mark Liu emphasized the importance of these investments in advancing semiconductor technology in the United States. The company's US operations not only strengthen its support for American customers but also enhance its ability to anticipate future advancements in the semiconductor industry.

    The US Chip Act, enacted in 2022, earmarks approximately $280 billion to enhance US chip research and production. Of this, around $52 billion is allocated to subsidize domestic chip production.

    The establishment of three factories in Arizona by TSMC is expected to create about 6,000 direct job opportunities for skilled workers in the industry. Additionally, besides the proposed $6.6 billion in direct financing, the agreement with the US Department includes provisions for providing TSMC with up to $5 billion in loans.

    TSMC: Key Financial Metrics

    This inflow of investments are helping the company consolidate its financial health.

    TSMC Financial Health

    Source: InvestingPro

    InvestingPro's analysis shows how TSMC can boast a very strong financial performance, with a score of 4 out of 5.

    Dividend Policy

    And thanks to its healthy finances, the company has been able to consistently repay shareholders who have decided to put their trust in it, offering a return 3 times higher than the average of its competitors.

    TSMC Dividend Policy

    Source: InvestingPro

    And as for the future, TSMC has no intention of stopping.

    "The company continues to pursue its long-term financial goals, which include an annual growth rate (CAGR) of revenues of 15-20%, a gross margin of 53% or higher, and an ROE of 25% or higher," the company noted in a recent financial statement.

    What's the Target (NYSE:TGT) Price for TSMC Stock?

    Finally, regarding the expected performance in the markets.

    The 13 analysts surveyed by InvestingPro are convinced that the stock still has a small margin for growth this year and set the target price at $150.93 per share.

    TSMC Fair Value

    Source: InvestingPro

    However, InvestingPro's Fair Value indicates that the stock's current price, at $145.50, already reflects its value, suggesting a potential downside of 13%.

    Nevertheless, ongoing developments in the technology rivalry between Washington and Beijing could benefit the Taiwanese company, leading analysts to raise their forecasts for TSMC.

    ***

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    Disclaimer: The author holds long positions in Paypal, S&P 500 and Nasdaq. This article was written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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