Artificial intelligence (AI) is revolutionizing various sectors, and the semiconductor industry is riding the wave, supplying specialized chips to meet AI's escalating demand for computing power and data processing. Meta Platforms (META) just unveiled a new AI accelerator chip, Meta Training and Inference Accelerator (MTIA), that’s aimed at both increasing efficiency and decreasing the company’s reliance on AI chips from Nvidia (NVDA).

The world's first dedicated semiconductor foundry, Taiwan Semiconductor ADR (TSM), has been confirmed as the producer of Meta’s advanced chips using its 5nm process. This chip, offering triple the performance of Meta’s first-generation processor, is designed to serve AI applications across the social media company’s family of apps, including support for generative AI workloads.

In today’s earnings release, TSM's Senior VP and Chief Financial Officer, Wendell Huang, commented, "Moving into the second quarter of 2024, we expect our business to be supported by strong demand for our industry-leading 3nm and 5nm technologies, partially offset by continued smartphone seasonality."

About Taiwan Semiconductor Stock

Headquartered in Hsinchu City, Taiwan, Taiwan Semiconductor ADR (TSM) has emerged as a major player in the semiconductor industry. With a market capitalization of $721.1 billion, it specializes in integrated circuit production and related services, catering to various industries globally, including high-performance computing, smartphones, Internet of Things (IoT), automotive, and digital consumer electronics.

In particular, Taiwan Semiconductor dominates the foundry market with a 61% market share, according to Counterpoint Research data. Top AI chip leaders such as Nvidia and Advanced Micro Devices (AMD), fabless semiconductor companies, count on Taiwan Semiconductor’s top-notch manufacturing expertise.

Shares of Taiwan Semiconductor have surged 27% on a YTD basis, outpacing the S&P 500 Index's ($SPX) 5.6% returns.

Taiwan Semiconductor boasts a record of paying dividends to shareholders for 19 consecutive years. The stock yields over 1% at current levels, and management’s policy is to return 70% of free cash flow on an annual basis as dividends.

Outperforming TSM trades at forward earnings of 23.18x - cheaper than its upstart foundry rival, Intel (INTC), which trades at 58.7x.

Taiwan Semiconductor Beats Q1 Estimates

Earlier today, Taiwan Semiconductor reported stronger-than-expected Q1 earnings of $1.38 per share. Its revenue grew 16.5% year over year to $18.3 billion, marginally surpassing the Street's forecast – driven by booming AI chip demand. 

In Q1, 3-nanometer shipments represented 9% of total wafer revenue, 5-nm accounted for 37%, and 7-nm comprised 19%. Advanced technologies, including 7-nm and above, constituted 65% of total wafer revenue.

Looking ahead, management forecasts Q2 revenue to range between $19.6 billion and $20.4 billion, which came in ahead of the consensus forecast. However, TSM shares are down today after the company said “strong demand” for AI chips will be “partially offset by continued smartphone seasonality.”

Analysts tracking Taiwan Semiconductor expect fiscal 2024 earnings to reach $6.15 per share, up 18.7% year-over-year, and increase an additional 23.9% in fiscal 2025 to $7.62 per share.

What Do Analysts Expect for Taiwan Semiconductor Stock?

Taiwan Semiconductor stock has a consensus "Strong Buy" rating. Out of nine analysts covering TSM stock, seven rate it as a "Strong Buy," while one suggests a "Moderate Buy," and one recommends a "Hold." 

The average analyst price target of $149.67 indicates a 13.2% upside potential from current levels. However, the Street-high price target of $180, assigned by Susquehanna's Mehdi Hosseini, suggests that the stock could rally as much as 36.2% over the longer term.