TSMC Just Broke Out. Yet the Stock Still Looks Strikingly Inexpensive

Shares of Taiwan Semiconductor (NYSE:TSM | TSM Price Prediction) recently hit fresh, new all-time highs as the semiconductor trade heats up, while investors digest that outstanding quarterly earnings report. Of course, the big question is whether the latest breakout is the start of a sustained rally to much higher levels or if this is a trap and the start of the next big pullback. Indeed, shares of the Taiwan-based fab giant have had no shortage of steep descents in the past year.

With shares dipping below $400 per share following the recent OpenAI report that it’ll fall short of expectations on the revenue and user target front, questions linger as to whether the world’s largest foundry can keep knocking balls out of the park as demand for AI chips remains off the charts. What was even more impressive than the first quarter results was the huge full-year guidance hike.

With the firm pulling the curtain on its three-year roadmap, it becomes more apparent that the latest growth spurt could have stronger legs than originally thought.

Taiwan Semiconductor keeps posting sensational quarters. Perhaps a greater premium might be warranted

Given management’s ability to execute, it’s tough to bet against Taiwan Semiconductor, even though it’s become a bit more expensive relative to recent history, with shares hovering around 33.7 times trailing price-to-earnings (P/E). Of course, the growth opportunity ahead and its dominant position in the foundry business make the geopolitical risk more than forgivable.

What’s most remarkable is that margins have been quite impressive despite the buildout of new factories. With CapEx poised to come in at the higher end of the range, perhaps Taiwan Semiconductor is one of the names that can spend aggressively without inducing fears. After all, the company has been making serious money in the early days of this AI boom.

What’s most exciting is where margins could land once the new plants are ready to go and the firm stays laser-focused on driving operating efficiencies. As Intel (NASDAQ:INTC) makes major strides, Taiwan Semiconductor will need to continue operating at a high level as A16 (1.6nm) chips enter production next year.

Whether or not the latest breakout in the shares is real, I still see shares as quite inexpensive, especially given the glimpse into the next three years. The name goes for 27.0 times forward P/E, which is on the higher side of the recent historical range. But, nonetheless, Taiwan Semiconductor is leading the charge, and as an inference inflection point looks to it, perhaps the foundry giant is the best way to play such a boom as it covers more than one base.

The boom in inference could shift the semi landscape

Whether it’s Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA), or another maker of custom silicon, most streams continue to move through Taiwan Semiconductor. And until that changes, I view the firm as a terrific way to bet on the broader semiconductor scene.

It’s tough to tell if hyperscaler custom silicon will dominate, if Nvidia will stay miles ahead in inference, or if more to the edge will be in the cards. In any case, Taiwan Semiconductor is arguably a winner, regardless of which of the many rising custom silicon players ends up walking away with the most market share gains.

Of course, everyone will need to keep tabs on Intel, especially after a historic past-year run. But, for the most part, it seems like Taiwan Semiconductor shareholders can sleep comfortably at night, given the foundry leader has no shortage of business coming its way as it leads us further into the sub-2nm era. It’s the titan to beat with its scale, execution, and profound innovation.