TSMC: A Most Agreeable Ascent

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One does occasionally stumble upon a company that simply gets on with things. Taiwan Semiconductor Manufacturing (TSM 2.21%), it seems, is rather good at that. The recent quarterly figures, predictably, were perfectly sound – a jump in the share price, naturally. About 70% over the year, I’m told. Honestly, one barely notices such things anymore.

The question, as always, isn’t whether the performance is acceptable (it is, demonstrably), but whether one should take the spoils or, heaven forbid, invest further. A tiresome dilemma, really. Let’s have a look, shall we?

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The Insatiable Appetite

Apparently, the demand for these ‘AI chips’ is quite relentless. One gathers they’re essential for all the latest frippery. TSMC’s capital expenditure reflects this, of course – a rather substantial $52 to $56 billion this year. A bit more than the analysts anticipated, naturally. One suspects they simply hadn’t grasped the sheer volume of pointless computation everyone seems determined to pursue. The cloud computing chaps are signalling continued extravagance, which is, if nothing else, consistent.

TSMC, bless its efficient heart, remains the undisputed leader in miniaturization. Shrinking these things, it appears, is vital for increasing both power and economy. While the competition struggles to achieve anything resembling competence, TSMC has rather neatly cornered the market. 77% of its revenue now comes from nodes of 7 nanometers or less – a perfectly respectable increase. And the new 3-nanometer technology is contributing a pleasing 28% to wafer revenue. One must admire the precision.

High-performance computing accounted for 55% of revenue, smartphones a predictable 32%. The smartphone figures, up 11% year-on-year, are… adequate. One assumes people still insist on having them.

Overall, Q4 revenue jumped nearly 26% to $33.7 billion – or 21% in local currency, which is, one supposes, the important figure. Earnings per ADR surged 40% to $3.14, and EPS climbed 35%. Perfectly satisfactory, wouldn’t you agree?

Gross margins expanded to 62.3%, and operating margins to 54%. Both exceeded expectations, naturally. TSMC anticipates even more robust figures for the first quarter – gross margins of 63-65%, and operating margins of 54-56%. They speak of overseas expansion eventually impacting margins, but one suspects they’re simply being polite.

They project Q1 revenue of $34.6 to $35.8 billion – a 38% year-on-year increase. For the full year, revenue growth of approximately 30%. One begins to feel almost… optimistic.

A Question of Disposition

TSMC, once again, demonstrates why it’s a rather sensible place to park one’s funds. Excellent revenue growth, expanding margins, and a degree of pricing power that is frankly rather refreshing. The US facilities may carry lower margins, but with a near-monopoly on advanced chip manufacturing, one anticipates robust gross margins will continue.

The increased capital expenditure will, of course, allow them to build more capacity. And while AI data centers are currently driving demand, one suspects applications like robotaxis and robotics are just around the corner. More pointless expenditure, naturally, but one mustn’t be a spoilsport.

Looking at valuation, TSMC trades at a forward P/E ratio of below 21 times, and a PEG ratio of 0.7. Stocks with a positive PEG ratio of less than 1 are, apparently, considered undervalued. With an undemanding valuation and a strong growth outlook, TSMC looks less like a stock to sell, and more like one to… accumulate. A perfectly reasonable proposition, don’t you think?

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2026-01-20 18:32