Taiwan Semiconductor Manufacturing Company (TSM), or TSMC for short, wrapped up 2024 on a high note, posting record-breaking results and exceeding market expectations. The company registered Q4 revenues of $26.88 billion, up 37% year-over-year and $890 million above consensus estimates. EPS climbed by an even more impressive 56% to $2.24 and edged past Wall Street’s estimates.
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These stellar results clearly reflect the strong demand TSMC enjoys for its cutting-edge technologies, especially in the booming AI and High-Performance Computing (HPC) markets. Over the past twelve months, TSMC has appreciated by almost 90%. In fact, TSMC’s dominance in the semiconductor industry, along with today’s conditions in the space, suggests that its momentum is far from over. For these reasons, I remain bullish on the stock.
AI and Advanced Tech Drive Explosive Revenue Growth
TSMC rarely fails to impress, and its most recent Q4 results were no exception. Revenues grew by 14.4% compared to the previous quarter and 37% year-over-year, primarily driven by strong demand for TSMC’s advanced 3nm and 5nm process technologies, which collectively accounted for 60% of total wafer revenue. Notably, 3nm technology alone accounted for 26% of wafer revenue, reflecting rapid adoption by customers seeking advanced chip capabilities. Moreover, high-performance computing emerged as the dominant segment, contributing 53% of total revenue and growing 19% quarter-over-quarter. Similarly, smartphone-related revenues grew by 17%, accounting for 35% of total sales.
Management attributed this growth to surging AI-related demand. AI accelerators, including GPUs, ASICs, and HBM controllers, were particularly impactful, with revenue from these technologies more than tripling year-over-year in 2024. This trend will remain in 2025, with management forecasting that TSMC’s AI-driven revenues will double this year. Such tremendous momentum across the board clearly demonstrates TSMC’s critical role as a technology enabler in the semiconductor supply chain. This is particularly true during the transformative era of AI we are experiencing today, which can’t make meaningful advances without the technology TSMC (and its peers) are developing.
Record Margins Power Future Profitability
Besides its continued top-line growth, TSMC’s profitability reached new heights in Q4, further powered by operational efficiencies that expanded margins. Specifically, TSMC’s gross margin rose from 57.8% to 59%, while its operating margin expanded from 47.5% to 49.0%. These gains were supported by higher capacity utilization rates and the growing scale of 3nm production despite initial ramp-up costs. Net profit margin, therefore, climbed to 43.1%, leading to record EPS for the quarter and the year.
Will TSMC’s Rally Endure?
With TSMC stock up 90% over the past year, one could argue that its ongoing success has already been priced in. However, given its growth prospects, TSMC’s valuation remains compelling. With current AI tailwinds remaining strong, its momentum is set to be sustained. Evidently, the consensus estimate for FY2025 EPS is $9.09, representing a 29.1% year-over-year increase. At this estimate, the stock trades at a forward P/E of 23.6. Wall Street market analysts see a further 20% EPS growth the year after, implying a forward P/E below 20 on FY2026 estimated earnings. This is a compelling multiple for a company of TSMC’s scale and technological prowess.
In particular, TSMC’s dominance of the semiconductor market uniquely positions the tech pioneer to capitalize on multi-year structural demand trends. The ongoing AI boom and the rising adoption of advanced technologies provide a strong foundation for sustained growth.
In the meantime, TSMC’s investments in next-generation technologies, including 2nm and A16 process nodes, are set to reinforce its competitive edge, and it seems most investors have overlooked the potential upside for companies at the forefront of tomorrow’s technology like TSMC.
Is TSMC a Good Stock to Buy?
Upon the release of its stellar Q4 results, TSMC stock rallied sharply. Wall Street analysts have since confirmed a Strong Buy rating on TSMC based on five Buys and one Hold rating in the past three months. TSMC stock carries a stock price target of $240.60, which implies almost 14% upside potential from current levels.
If you have not yet decided which analyst you should trust to trade TSMC stock, the most accurate and profitable analyst covering the stock (on a one-year timeframe) is Bruce Lu of Goldman Sachs (GS). He features an average return of 34.7% per rating and a 65% success rate.
Upside Awaits for Record-Breaking TSMC
Taiwan Semiconductor capped off 2024 with record-breaking results, confidently showcasing its strength in the booming AI and HPC markets. With outstanding revenue growth, expanding gross, operating, and net margins, and an ever-rising demand for cutting-edge technologies like 3nm and 5nm processes, TSMC seems poised to maintain its dominance in the semiconductor industry. However, the most convincing factor for building a long position, in my view, is that the stock’s valuation remains attractive against Wall Street’s growth projections. Therefore, I view TSMC as a compelling investment today, even after its protracted share price gains.
