We came across a bullish thesis on Taiwan Semiconductor Manufacturing Company Limited (TSM) on Make Money, Make Time’s Substack by Oliver | MMMT Wealth. In this article, we will summarize the bulls’ thesis on TSM. Taiwan Semiconductor Manufacturing Company Limited's share was trading at $200.78 as of Oct 18^th. TSM’s trailing and forward P/E were 35.77 and 24.51 respectively according to Yahoo Finance.

A technician soldering a semiconductor chip, emphasizing the power of the company's products.

Taiwan Semiconductor Manufacturing Company (TSMC) remains a dominant force in the semiconductor industry, producing and selling integrated circuits to major clients such as NVIDIA, AMD, and Intel. The company's formidable competitive advantage stems from the complexity and cost of its manufacturing processes, which have created one of the largest moats in the market. In the third quarter, TSMC reported robust earnings, with revenue surpassing estimates by 1% and demonstrating a solid 13% quarter-over-quarter growth. This momentum is underscored by the company's significant margin expansion, with GAAP earnings per share (EPS) reaching $0.39, exceeding expectations by $0.03. Additionally, TSMC's cash and cash equivalents totaled $68 million, reflecting a slight increase over the previous quarter.

Management highlighted strong demand across all product categories, particularly in advanced technologies, which include high-performance computing and Internet of Things (IoT) applications, witnessing quarter-over-quarter growth rates of 11% and 35%, respectively. The CEO emphasized that AI-related demand is expected to be "extremely robust" until at least 2025, predicting that revenue from server AI processors will more than triple this year. This positioning showcases TSMC's strategic advantage in capitalizing on the burgeoning AI market.

Despite these promising developments, investor concerns linger regarding TSMC's heavy reliance on Taiwan for operations amid ongoing geopolitical tensions with China. However, the CEO has reported positive progress on TSMC's factories in Arizona, which are backed by support from federal, state, and local governments. This diversification not only mitigates geopolitical risks but also enhances flexibility for TSMC's customers, potentially leading to significant economies of scale as these facilities begin production over the next decade.

Management also discussed expansions in Japan and Germany, targeting volume production by 2027. While these initiatives may slightly pressure margins in the short term, they represent a long-term strategy to establish TSMC as one of the world's most cost-efficient manufacturers. For current shareholders, this is indicative of the sustainable competitive advantage TSMC is fostering.