Key points
- Semiconductor stocks have been a must-have in your portfolio this decade, especially now that the U.S. government is leveling the playing field.
- Taiwan Semiconductor stock quickly becomes a top pick, offering a discount to its industry-leading growth rates.
- Analysts see the writing on the wall, and the recent price action could be a taste of what’s to come.
- 5 stocks we prefer to Intel’s
The hype with technology stocks continue as Nvidia Corp. NASDAQ:NVDA makes all-time highs. There are enough reasons to be bullish semiconductor stocks, but not all are the same. Here’s how you can get an edge.
A significant shift is occurring in the chip and semiconductor supply chain roadmap, especially as the United States and China continue to increase their chip wars.
The markets have drifted apart Taiwan Semiconductor Manufacturing Company Ltd. New York Stock Exchange: TSM why Taiwan is threatened by invasion from China, which would severely disrupt the supply chains of major US names. However, some institutions are willing to place a contrary bet.
Taiwan Semiconductors: Your Best Choice
Some names got the cut of the funding after the passage of the Chips and Science Act, a multibillion-dollar attempt to build fabrication plants (fabs) for domestic chip production. Investors fled into stocks like Intel Corp. NASDAQ: INTC, Advanced Micro Devices Inc. NASDAQ:AMD AND The Apple company. NASDAQ:AAPLas they drove the indices to all-time highs.
However, Taiwan semiconductors provides most of the components and materials these two companies need to make their chips.
Bloomberg Intelligence sources they point to a potential $5 billion coming to Taiwan Semiconductor in the latest round of incentive financing. The company will strengthen its presence in Arizona to support the government’s goal of onshoring chip supply chains.
After rallying nearly 50% in recent quarters, some on Wall Street still see a higher ceiling in the coming months.
Growth leader at a discount
Price action is just one of the many ways you can gauge market sentiment. Taiwan Semiconductor shares are trading 90% of their 52-week high, on par with Nvidia and Advanced Micro Devices, which are trading 92% and 85%.
More traditional valuation metrics, such as the forward price-to-earnings ratio (forward P/E), can help you better understand the potential upside. Valued at 18 times P/E, Taiwan Semiconductor shares are offered 46% to NVIDIA and 51% to Advanced Micro Devices.
Banking on these discounts, Fisher Asset Management (known for its long-term value investing approach) increased its stake in the stock this month. Increasing your exposure by 1.4% meant a transaction exceeding $45 million.
Analysts at Susquehanna Bancshares Inc. NASDAQ: SUSQ followed suit in this bullish narrative. In its price increase target for Taiwan Semiconductor shares, the company now sees a valuation up to $160 a stock, requiring an upside of about 12% from where the stock is trading today.
These same analysts project earnings per share (EPS) growth of 24% over the next 12 months for the chipmaker, positioning it higher than that of Nvidia 9% projection.
Forward P/E is how the market attributes today’s value to tomorrow’s earnings. Knowing that Taiwan Semiconductor stock is set to grow its EPS above its peers, fear is the only reason its forward P/E is so low.
Before considering Intel, you’ll want to hear this.
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