Taiwan Semiconductor Manufacturing (NYSE:TSM), considered the world’s largest chip manufacturer, is going big on the latest artificial intelligence (AI) boom. TSMC revealed a new massive investment, totaling $2.87 billion, in setting up a state-of-the-art chip packaging plant in Taiwan. Following the news, TSM stock is up currently up 2.3%.
The company plans to build a major chip packaging fabrication plant in the Tongluo Science Park in northern Taiwan, which will generate roughly 1,500 local jobs in the vicinity. Chip packaging involves manufacturing protective cases and creating connections so that the chips can be placed into the electronic device. During TSM’s second-quarter earnings call, CEO C.C. Wei warned that the company faces some supply constraints regarding the packaging parts. To increase the output of chip packaging and the resultant final chip sales, TSM has decided to set up the plant.
TSMC’s chips are used in iconic products such as Apple’s (NASDAQ:AAPL) iPhones, iMacs, and iPads. The company wants to leverage the burgeoning demand for semiconductor chips worldwide and prove its edge in the global chip market. American companies Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) are presumably two of TSM’s largest chip customers. Nvidia uses TSM’s chips in building graphic processing units (GPUs) that are used to create AI software based on large language models (LLMs), such as ChatGPT.
Notably, TSMC is also poised to benefit from Germany’s government aid, supporting the development of chip factories in the nation. Reports suggest that Germany plans to allocate funds to TSMC to build a manufacturing facility in Dresden. The plant will focus on producing microcontrollers that are used by German carmakers.
Is TSM a Buy or Sell, According to Analysts?
Following TSM’s Q2 results, Bank of America Securities analyst Brad Lin lifted the price target on TSM stock to $125 from $115 and maintained his Buy rating.
On TipRanks, TSM stock commands a Strong Buy consensus rating based on three Buys and one Hold rating. The average Taiwan Semiconductor price target of $125 implies 24.4% upside potential from current levels. Meanwhile, TSM stock has gained 36.8% so far this year.
