Taiwan Semiconductor Stock Alert: Expect Unstoppable Growth from TSM

Concerns about a slowdown in Taiwan Semiconductor Manufacturing’s (NYSE:TSM) chip business is now a distant memory. After the overwhelming earnings report from NVIDIA (NASDAQ:NVDA) Taiwan Semiconductor stock is definitely a buy.

Super-microcomputer (NASDAQ:SMCI) missed analysts’ forecasts in its own earnings report last month, sending the industry reeling. Nvidia’s results underscore the foundry’s strong momentum.

Taiwan Semiconductor Stock and NVDA

You can’t discuss TSM’s business without mentioning Nvidia’s performance. The chipmaker closed another record quarter with revenue of $26 billion, up 262% from last year’s $7.2 billion.

This also significantly exceeded Wall Street’s consensus estimate of $24.3 billion. The profit of $5.98 also far exceeded the previous year’s profit of 82 cents and far exceeded analyst forecasts of $5.60 earnings per share.

The results were not unexpected. With demand for artificial intelligence chips at its peak, revenue from data centers (which house NVDA’s AI chips) rose to $22.6 billion, according to Nvidia, an incredible 427 percent year-over-year and 23 percent higher than the fourth quarter.

CEO Jensen Huang said: “Our data center growth has been driven by strong and increasing demand for generative AI training and inference on the Hopper platform.”

This refers to Nvidia’s H100 and H200 chips, but a new, even more powerful AI chip is currently coming onto the market: the Grace Blackwell superchip, which is also expected to be in huge demand.

Huang said a second industrial revolution has begun and Nvidia is transforming the trillion-dollar data center industry into “AI factories.”

All this is important to understand why Taiwan Semiconductor Manufacturing is a giant of opportunity.

Fears of a downturn in the industry are exaggerated

Nvidia is TSM’s second-largest customer, accounting for an estimated 11% of total revenue. The explosive growth the chipmaker is experiencing will also boost Taiwan Semiconductor’s own business.

What is incredible, however, is that Nvidia is only TSM’s second customer. Apple (NASDAQ:AAPL) is the largest customer and represents a quarter of the foundry’s turnover.

While most of that was destined for Apple’s iPhone and similar devices, the tech giant is now producing its own AI chips for data centers, which TSM will manufacture. They will not be sold to other companies but are for its own use.

Apple chips in data centers, codenamed ACDC, will focus on AI inference rather than AI training. This means Apple will use already-trained AI algorithms to use real-world data rather than developing and refining the algorithms.

Taiwan Semiconductor Manufacturing’s third largest customer is modern micro devices (NASDAQ:AMD).

It accounts for 7% of sales. Qualcomm (NASDAQ:QCOM), MediaTek, Broadcom (NASDAQ:AVGO), And Intel (NASDAQ:INTC) round out the list of TSM’s largest customers.

On the fast track to growth

TSM CEO CC Wei said semiconductor companies’ demand for AI chips was “insatiable,” and predicted sales would double this year.

Despite its record-breaking growth rate, Taiwan Semiconductor’s stock is trading at just 20 times next year’s earnings.

Wall Street is forecasting that the foundry will post earnings growth of 21.5% per year. That means TSM stock is trading at well under twice its sales, making it a discount stock.

As business continues to pick up at Taiwan Semiconductor Manufacturing’s largest customers, the foundry is expected to continue to experience outsized growth in its own revenues, profits and stock price.

At the time of publication, Rich Duprey did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s disclosure policies.