Two of the most important stocks in the semiconductor value chain today are Taiwan Semiconductor Manufacturing (NYSE: TSM) and ASML (NASDAQ: ASML). TSMC has a virtual monopoly on the manufacturing of advanced logic chips, such as graphics processing units (GPUs) and high-performance central processing units (CPUs), while ASML has a full-blown monopoly on the machines that make these chips possible.
I think both stocks look like solid long-term buys given their dominant positions within the semiconductor ecosystem, but if I could buy only one, it would be TSMC.
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Let's dive into both semiconductor stocks to see why I prefer TSMC.
Nvidia has been the company leading the AI revolution with its GPUs, and its CEO, Jensen Huang, understands the importance that TSMC plays in the whole process. Last year, he called TSMC "one of the greatest companies in the history of humanity" while adding that "anybody who wants to buy TSMC stock is a very smart person."
Manufacturing advanced logic chips is a difficult task, and TSMC is the only company that has proven it can do it at high yields (producing chips with few defects) at scale. Rivals Samsung and Intel have both experienced struggles with yields, and it is why Huang warned Elon Musk that pulling off his TerraFab project is going to be very difficult.
TSMC's technological lead has given it a virtual monopoly in the space, making it a close partner with chip designers with whom it works closely to increase capacity to meet future chip demand. Future demand is so high that TSMC has been ramping up its own capital expenditure (capex) to increase capacity, which will drive strong future growth. The company's position has also afforded it strong pricing power, which has nicely lifted its gross margins and helped drive profitability.
The beauty of an investment in TSMC is that it generally benefits no matter which chip technology takes share, as it is the primary manufacturer of most types of advanced logic chips. This includes Nvidia and AMD GPUs, AI ASICs (application-specific integrated circuits), and central processing units (CPUs).
Trading at a forward price-to-earnings (P/E) ratio of 19 times 2027 analyst estimates, the stock is undervalued given its growth prospects and position in the semiconductor ecosystem.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
