Why Taiwan Semiconductor Manufacturing Stock Jumped on Tuesday

Buffett’s Berkshire Hathaway might have found a bargain in the beaten-down chip manufacturer.

What happened

Shares of Taiwan Semiconductor Manufacturing (TSM 11.22%) were up 12.4% as of 10:19 a.m. ET on Tuesday after Warren Buffett‘s Berkshire Hathaway (BRK.A 0.24%) (BRK.B 0.17%) disclosed a large stake in the chipmaker.

TSM shares have fallen sharply this year over slowing demand in the semiconductor industry, but the investment by Berkshire is a signal that the stock has reached value territory.

a drawing of a cartoon character

NYSE: TSM

Taiwan Semiconductor Manufacturing
Today’s Change
(11.22%) $8.17
Current Price
$80.97
 TSM

KEY DATA POINTS

Market Cap
$373B
Day’s Range
$80.01 – $82.93
52wk Range
$59.43 – $145.00
Volume
39,853,795
Avg Vol
14,707,406
Gross Margin
52.61%
Dividend Yield
1.86%

So what

TSM is the leading chip manufacturer in the world. It makes chips for NvidiaAdvanced Micro DevicesIntel, among others. Its expertise in cutting-edge chip technology allows the business to generate a high operating margin close to 50%, which is rare.

It certainly fits the type of industry-leading, profitable company with a long history of operating excellence that would draw the interest of Buffett or one of his investing lieutenants, Todd Combs or Ted Weschler.

However, Berkshire is clearly willing to be patient with this investment, as TSM faces a number of headwinds in the near term, including rising inflationary costs and slowing chip demand. Moreover, Intel is expanding its U.S. chip manufacturing capacity, which some investors view as a major threat to TSM’s foundry business.

Now what

TSM reported strong revenue growth of 48% year over year in the third quarter, led by growing demand for chips used in smartphones, Internet of Things, and automotive applications. The stock has fallen over management’s warning of slowing growth in the fourth quarter, where revenue is expected to increase by less than 1% over the third quarter.

Berkshire’s $4.1 billion stake in the company is a good sign for long-term investors, but in the near term, the market may revert its attention back to TSM’s lower guidance and headwinds in 2023, which could keep the stock down for a while.

The investment in TSM is clearly a bet on the long-term adoption curve of high-performance computing applications, which are playing an increasingly important role in the global economy. TSM is still well positioned to ride that growth.

 

 

 

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you consider Taiwan Semiconductor Manufacturing, you’ll want to hear this.

The Motley Fool Stock Advisor analyst team just revealed their 10 Best Buys Now… and Taiwan Semiconductor Manufacturing wasn’t one of them.

Stock Advisor is the online investing service that has beaten the stock market by 3x since 2002*. And the team just revealed their 10 Best Buys Now.