TSM could be a long-term play that runs into 2025
Every year, Schaeffer’s Senior Market Analyst Matthew Timpane chooses a few stock picks for traders that subscribe to fellow market news platform, MoneyShow. The 2023 year saw Timpane bring in impressive profits, winning MoneyShow’s Top Pros’ Top Picks project for 2023, with his MongoDB (MDB) recommendation gaining roughly 115% on the year. Therefore, when asked to return for the 2024 trading year, another pair of carefully considered stocks made it into his annual report.
One of these stocks was chip maker Taiwan Semiconductor (NYSE:TSM), which has seen an incredible performance in the last eight months. We wanted to check in with Matt, to gather some of his thoughts on the equity’s outperformance, as well as his original reasoning behind choosing the now red-hot artificial intelligence (AI) stock. Find Timpane’s original report on TSM here.
As of this writing, Taiwan Semiconductor shares have climbed 68% in 2024, its only notable pullback captured by the ascending 200-day moving average earlier this month. Prior to the security’s brief correction, TSM hit a record peak of $193.47 on July 11.
TSM Q&A
Emma Duncan: With Big Tech continuing its reign on Wall Street, what made TSM your pick out of all the other potential AI/chip outperformers?
Matthew Timpane: TSM had yet to really capture the AI move that was happening in the market because it’s a fabricator, but I thought it was crazy to think it wouldn’t flow over to them since fabless companies capitalizing on the AI movement like AMD, NVDA, and AVGO are TSM customers. And, this is what we see playing out this year. Those companies need their chips fabricated, and there is no bigger or better foundry than TSM.
ED: How sustainable do you expect this AI obsession to be for not only chip stocks, but options traders, Big Tech overall, and especially those based overseas like TSM?
MT: AI potential is massive – I hate to compare it to the dot com boom, but it has that kind of potential. I expect it will significantly impact the way humans operate & function within society. My mid-year picks for SIR were both AI-themed, to continue with my long-term thesis that this is a long-term play. Obviously, there will be large pullbacks in these names at times, but the winners will emerge and usually be the first to run from those pullbacks, like TSM. Goldman recently estimated that AI investments could peak at more than 2% of gross domestic product (GDP) data by 2032, with estimates between 2.5% and 4%. So by this measure, we are still in the early innings.
ED: Has TSM hit its top yet? Where could we be expecting it to run from here, record heights?
MT: The saying goes, the bigger the base, the higher the space; TSM took three years to base and break out above previous all-time highs. A measured move calculation has this pegged at $240, and the Fibonacci extension from the January 2022 high to the October 2022 low is $198 – which we were close to achieving in July. Valuations are higher than when I recommended the position, but the price-to-earnings (P/E) ratio and other valuation metrics are still below those 2021 highs.
In a high-growth phase, I wouldn’t worry about valuations as much because it’s more about the capacity they can add to deliver wafers to their customers. The demand has not waned and I think the delay news in NVDA chips that hit during the final stage of the recent sell-off is proof they have a backlog and are pumping out chips as fast as they can. So, while I hope some investors took some profits off the table into the mid-summer ramp, I would continue to want to hold on to a position as long as the 200-day moving average remains intact, since this is a long-term play that could run into 2025.