TSMC, with a market capitalization of US$2.4 trillion: the ultimate beneficiary of AI “gold diggers” in the eyes of Wall Street

TSMC, with a market value of US$2.4 trillion, is the most potential investment target in the artificial intelligence revolution.

Foreign media reports pointed out that it is not Intel or Huida: TSMC, with a market value of US$2.4 trillion, is the chip giant that Wall Street calls the ultimate beneficiary of AI "gold diggers". However, it is also reminded that if the artificial intelligence craze eventually slows down or subsides, investors need to proceed with caution, which will not only damage TSMC's revenue and stock price, but may also affect its higher-than-normal profit margins.

The Motley Fool reported that almost everyone knows that computer chips are the key to the flourishing development of artificial intelligence (AI). Without the chips, advanced artificial intelligence cannot be trained or run on billions of computers around the world, bringing Intel back from the dead and making Huida the most valuable company in the world. However, there are many little-known gems in the field of computer chips. Among them, TSMC, with a market value of US$2.4 trillion, is the most potential investment target in the artificial intelligence revolution.

Most of the world's largest technology companies have chip manufacturing contracts with TSMC. Huida does not produce its own chips, but sends the design draft to TSMC. It is also the only company in the world that can mass-produce Huida chips. Even Intel has had to outsource some of its advanced chip manufacturing to TSMC.

Hyperscale data center operators commission TSMC to manufacture computer chips for artificial intelligence cloud computing. Most of Apple's computer chips are produced by TSMC.

This makes TSMC not only an important part of the artificial intelligence revolution, but also a key driving force in the development of smartphones and cloud computing. In the past 12 months, TSMC’s revenue reached US$143 billion, an annual increase of 34% in the last quarter. Its high-performance computing (HPC) business is experiencing strong demand, growing 20% ​​from the previous quarter and now accounting for 66% of the company's overall business.

Unlike most other manufacturers, TSMC has huge pricing power because it is the only one able to produce chips for companies like Huida and Apple.

TSMC’s operating profit margin last quarter was 60%, higher than almost all software companies in the world. If the revenue in the past 12 months is extrapolated based on this, the total profit will reach 86 billion US dollars.

Some investors worry about TSMC's close ties to Taiwan, which is risky given China's rhetoric about invading the island. The company is rapidly diversifying its production operations into the United States and other countries, and plans to invest $265 billion in building factories in the United States alone. Most of the construction has been completed.

The revenue and profit surge that TSMC has achieved with the help of artificial intelligence may not be repeated in the next few years. If companies such as OpenAI and Anthropic stop investing heavily in artificial intelligence training and applications, this may hinder their revenue growth.

TSMC's current price-to-earnings ratio is 33 times, and its stock price is not too high relative to its past growth rate. If demand for artificial intelligence chips continues to grow in the next few years, its stock price may rise further.

However, The Motley Fool also cautions that investors need to proceed with caution if the artificial intelligence craze eventually slows or subsides. This will not only hurt TSMC's revenue, but may also affect its higher-than-normal profit margins.

For example, if TSMC's annual revenue grows to $200 billion and it maintains a 60% profit margin, its profits will reach $120 billion, which is likely to push up its stock price. However, if the economy slows down and causes revenue to drop to $125 billion and margins to 45% or lower, then earnings will drop to $56 billion, which is a huge gap and will likely result in a decline in the stock price.