In the video clip below from a recent episode of The AI Investor Podcast from 24/7 Wall St., the team discusses Taiwan Semiconductor Manufacturing Company, a company that sits comfortably between the giants like NVIDIA and smaller firms in the AI race. With a market capitalization of approximately $750 billion, TSMC is a heavyweight in the semiconductor industry, boasting a near-monopoly in manufacturing cutting-edge chips.

The company is trading at about 17 times next year’s earnings, which is intriguing given its strong growth prospects—profits are expected to increase by more than 30%. This valuation is relatively modest for a company with such a dominant market position and robust growth trajectory. One of the catalysts for TSMC’s anticipated growth is the upcoming supercycle in smartphone upgrades. Apple is expected to see significantly higher upgrade rates for its iPhones, driven by AI features that provide consumers with compelling reasons to update their devices.

Additionally, competition is waning; Intel is struggling and may require a government bailout, while Samsung is falling behind TSMC technologically. TSMC is also successfully implementing pricing changes that customers are accepting, enhancing its profitability.

However, TSMC’s valuation reflects underlying geopolitical risks associated with its location in Taiwan.

The company’s proximity to China introduces concerns about potential geopolitical tensions that could impact its operations. While this risk cannot be ignored, we believe the market has already priced it into the stock.

At its current valuation, the risk-reward balance appears favorable. Should geopolitical risks intensify, our dynamic portfolio setup enables us to reallocate funds as necessary. We are also monitoring semiconductor equipment suppliers like ASML, Tokyo Electron, and KLA Corporation for future investment opportunities, especially if market conditions provide more attractive entry points due to factors like recession fears.

It’s important to acknowledge that investing in TSMC means engaging with the broader intersection of technology and geopolitics—a feature that is becoming increasingly prevalent in today’s investment landscape.

Our strategy is to stay informed and adaptable, ensuring that we can navigate any changes in the global environment while capitalizing on TSMC’s strong business fundamentals.

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