The past decade has been a rewarding one for Taiwan Semiconductor Manufacturing (NYSE: TSM) investors, as shares of the foundry giant have shot up an incredible 706% during this period, turning an investment of $10,000 made in the stock 10 years ago into just over $80,000, as of this writing.
Popularly known as TSMC, the Taiwan-based company benefited from the secular growth in the semiconductor space over the past 10 years. As such, anyone who bought $10,000 worth of TSMC stock a decade ago with the aim of constructing a million-dollar portfolio will be pleased by their investment.
But what if you're looking to build a diversified million-dollar portfolio now and have $10,000 in investible cash (after paying off your bills, clearing your high-interest loans, and saving enough for difficult times) to purchase shares of this semiconductor giant? Should you be putting that money into TSMC stock with the expectation that it could replicate its past performance for, let's say, the next 10 to 15 years?
Let's find out.
The semiconductor market's secular growth will be a long-term tailwind for TSMC
According to McKinsey, the global semiconductor market could cross annual revenue of $1 trillion by 2030, as compared to $600 billion in 2021. Certain estimates are even more optimistic. Precedence Research, for instance, forecasts that the semiconductor industry could generate more than $2 trillion in revenue by 2032 by growing at an annual pace of nearly 15%.
Such rosy estimates can be attributed to the rapidly increasing need for chips in multiple industries, ranging from data centers to smartphones to personal computers, to factories to cars. All these semiconductor markets are expected to be positively impacted by the growing adoption of artificial intelligence (AI).
Precedence Research forecasts that AI chips alone could generate nearly $928 billion in annual revenue in 2034, with an annual growth rate of 29%. TSMC gives investors one of the best ways to capitalize on this massive opportunity in the semiconductor market. That's because when major semiconductor and consumer electronics companies are looking to manufacture their chips, they turn to TSMC.
TSMC is the world's largest semiconductor foundry. It enjoys a 62% share of the foundry market, while its nearest rival holds a market share of just 11%. Fabless chipmakers such as Nvidia, Broadcom, Marvell, Qualcomm, Advanced Micro Devices, Micron Technology, and device manufacturers such as Apple and Sony get their chips fabricated by TSMC.
The company points out that it "served 528 customers and manufactured 11,895 products for various applications" in 2023. This huge and diversified customer base, along with the overall growth of the semiconductor market, tells us why TSMC has been growing at an incredible pace this year. The company's revenue in the first 10 months of 2024 increased by 31.5% from the same period last year.
TSMC is expected to sustain this momentum in the final two months of the year as well, with management pointing out on the October earnings conference call that it expects 2024 revenue to increase by nearly 30%. TSMC is expected to maintain healthy growth rates for the next couple of years as well.
TSM Revenue Estimates for Current Fiscal Year data by YCharts
What's more, the healthy growth in TSMC's revenue is set to drive an impressive increase in its bottom line.
TSM EPS Estimates for Current Fiscal Year data by YCharts
We have already seen the incredible opportunity that TSMC is sitting on thanks to the semiconductor industry, and the good part is that it is expected to maintain its dominance in this market for a long time to come. As reported by Tom's Hardware, TSMC is expected to maintain its terrific lead in the foundry market until at least 2032.
That won't be surprising, as TSMC is aggressively investing capital in the development of more fabrication plants and is looking to stay ahead by developing advanced chip nodes ahead of rivals such as Intel and Samsung.
Solid long-term growth could lead to healthy stock price gains
TSMC ended 2023 with earnings of $5.18 per share. The previous chart tells us that the company's bottom line could increase to $10.35 per share in 2026. That would translate into a three-year compound annual growth rate (CAGR) of nearly 26%.
Assuming TSMC can maintain even a 15% annual earnings growth rate over the next decade, after accounting for potential competition and headwinds in the semiconductor industry, its bottom line could hit $20.95 per share at the end of 2033 (using 2023 earnings as the base). TSMC has a five-year average price-to-earnings ratio of 22, which is lower than the tech-heavy Nasdaq-100 index's earnings multiple of 33.
If the market decides to reward the company's healthy growth with a richer earnings multiple and TSMC trades at an even 30 times earnings after a decade, its stock price could hit $628. That would be a 239% increase from current levels. So, an investment of $10,000 in TSMC could be worth more than $33,900 after 10 years, which is why the stock looks like a good choice for investors looking for building blocks to construct a million-dollar portfolio.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Marvell Technology and recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
