I think Taiwan Semiconductor Manufacturing Co (NYSE:TSM), also known as TSMC, is one of the best growth stocks for my portfolio. The Hsinchu-based company is the world’s largest manufacturer of semiconductors by market share and has lofty plans for future growth. I think this firm is in a great position to benefit from the huge demand for semiconductors right now, as well as long-term trends.
Strong product demand
Semiconductors are critical components that power electronics from computers and smartphones to a whole host of tech that is now standard in cars. Taiwan is known as a hub for the manufacturer of semiconductors and much of this is due to TSMC. It accounted for a whopping 54% of total foundry revenue globally in 2020, according to TrendForce data.
The company sells its products to dozens of household names in sectors from computing to cars. And right now, demand for semiconductors is at an all-time high. The current shortage is impacting many industries. Recent attempts to buy a new car really hammered this home for me. And on Monday, BMW CEO Oliver Zipse said that he believes the shortage will continue to plague carmakers for two more years.
As the world’s largest contract chip manufacturer, TSMC stands to benefit. The company has forecast a huge 25%-29% increase in sales for 2022.
Performance data
On Friday after the stock market closed, TSMC highlighted how the firm is benefiting from the current operating environment. It said it had set a new quarterly high for sales in January to March, beating its own projections. TSMC recorded sales of US$16.99bn in the first quarter, up 12% from a quarter earlier and also up 35.5% from the same period a year earlier. The data proved even better than the company had forecast. The results came despite Q1 generally being a slow period for the industry.
The company also made the most of higher product prices due to the global shortage of semiconductors. TSMC will hold an investors conference on Thursday to give guidance for the second quarter.
Expansion planning
In 2021, TSMC announced a $100bn expansion plan for the next few years. The plan aims to see company maintain its place as the number one producer of semiconductors and increase its capacity in manufacturing the most advanced 5-nanometer chips. Capital spending is expected to rise to around $40bn-$44bn in 2022 from $30bn in 2020.
The company’s ambitious growth plans may concern shareholders as some analysts pointed to future market oversupply. But TSMC is confident that any correction and oversupply in the market would be short-lived and that the company’s technological primacy would see it less impacted than other firms. And in the long term, I think TSMC will prosper as silicon content in tech gadgets and electric cars drive greater demand.
There is some concern about how geopolitical changes, including a more assertive China, could impact TSMC’s operations. That remains a risk.
TSMC closed on Friday at under $100 a share. This is the cheapest the Taiwan-based firm has been all year.
I’ve recently bought this stock, as I think TSMC will continue to report record gains in the current market and will benefit from industry trends into the future.