Chip stocks are facing a sell-off! US media: Buy TSMC as a "safety card"

Almost all stocks related to artificial intelligence (AI) faced a sell-off last week, mainly due to rising AI infrastructure capital expenditures and rising interest rates. An analysis by the American investment media "The Motley Fool" pointed out that this situation shows that investors are seeking hedging, and buying TSMC as a "safety card" looks more and more like a wise choice.

TSMC released its third-quarter financial report on the 15th. The company’s third-quarter revenue increased by 51% year-on-year to nearly US$47 billion (NT$1.52 trillion). Due to the slowdown in cost and expense growth, its third-quarter net profit increased by 69% to nearly US$24 billion (NT$776.1 billion).

In addition to the major semiconductor equipment manufacturer ASML, TSMC undoubtedly has the most advantageous position in the AI ​​hardware industry. According to data from TrendForce, TSMC has a market share of approximately 73% in the global foundry market, and it also occupies a dominant position in the field of advanced chip production.

Despite this, TSMC's stock price still fell after the release of its third-quarter earnings report. High capital expenditures by hyperscale data center operators and rising interest rates have raised questions about whether AI data center expansion can continue at its current pace.

There is indeed the possibility of the bubble bursting in the AI ​​field, and its growth rate may slow down or even experience negative growth. However, just as the Internet survived the dot-com bubble burst, AI is likely to survive.

Therefore, the industry will still need a lot of chips produced by TSMC. Major customers such as Huida and Broadcom will continue to develop more advanced chips and require TSMC to produce them.

AI concept stocks seem to be in free fall right now, and it may not be wise to buy them all at this time. Still, now might be a good time to start dollar-cost averaging and buy TSMC shares, which are up about 40% in the past year even with the recent selloff.

In addition, despite TSMC's rapid development, its price-to-earnings ratio is still as high as about 30 times. While the company has begun producing more chips at U.S. foundries, geopolitical risks from China's annexation of Taiwan still put some pressure on its valuation.

However, given TSMC's rapid profit growth, its price-to-earnings ratio is low; and given China's reliance on TSMC's foundries, China is unlikely to take any action that could disrupt the chip supply chain.

As investment in the AI ​​industry becomes uncertain, TSMC is fully prepared to provide security and growth opportunities. Indeed, an industry slowdown could take a toll on TSMC, and the company is located in a more dangerous part of the world.

Still, AI is likely to become a part of our lives, which means any downturn in AI is likely to be temporary. Furthermore, even if AI activity slows down, TSMC's major customers will continue to innovate, meaning the company will almost certainly continue to generate revenue from AI.

Therefore, even amid geopolitical uncertainty, TSMC remains a top AI chip stock to buy, and it will help protect and grow investor wealth over time.