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TaiwanSemiconductor's (TSM) impressive second-quarter revenue growth, combined with its recently reported decision to build three new packaging plants and reports that it has been capacity constrained, indicate that the firm continues to be a huge beneficiary of the AI boom. Additionally, the company is highly unlikely to be hurt by competition in the foreseeable future, and its valuation is attractive.
On the downside, there is a possibility of China invading Taiwan, where most of TSM's factories and much of its advanced chip production are located, within a few years. Therefore, long-term, risk-averse investors may want to consider avoiding the name.
Rapid Growth, New Plants, and Capacity Constrained
TSM 's revenue soared 36% in Q2 to a record $39.6 billion versus the same period a year earlier. Moreover, the giant chip maker noted that in June its top line had jumped 67.9% year-over-year (YOY) to a monthly record of $13.2 billion. TSM is slated to disclose its full Q2 financial results on July 16.
The company intends to build three additional packaging plants in Taiwan, a Taiwanese government official stated, according to multiple reports.
And in May, investment bank Bernstein reported that the company was capacity constrained. In other words, it could not manufacture enough chips to keep up with the demand for them.
Goldman Sachs believes that the company's financial results continue to be boosted by strong demand for AI and high-performance computing. The investment bank expects this trend to continue for multiple years. Further, JPMorgan stated that the company is benefiting from its customers paying 50%-100% above normal prices in order to obtain their chips more quickly.
Unlikely To Be Hurt by Competition and an Attractive Valuation
Since TSM is capacity constrained, it's unlikely to be negatively affected even if it loses some market share going forward. And with many of the company's customers, such as Advanced Micro Devices (AMD), Nvidia Corporation (NVDA), and Marvell Technology (MRVL), continuing to grow their revenue by large amounts, Taiwan Semi is likely to continue to benefit from their rapid expansion going forward. Finally, in May, Bernstein saw no indication that Intel (INTC) was becoming more competitive with TSM, and the investment bank does not expect Intel's deals with Apple (AAPL) to reduce TSM's revenue. Finally, TSM remains ahead of Samsung technologically, Bernstein stated.
An Invasion of Taiwan by China Is Possible
Advisors to President Donald Trump in May reportedly warned that China could invade Taiwan within the next five years. And some say that China, by preventing TSM from exporting its chips, could cripple the company even without an invasion.
