Analyst on Wall Street Predicts Taiwan Semiconductor Share Price Could Reach $240. Worthy of Investment?
Analyst on Wall Street Predicts Taiwan Semiconductor Share Price Could Reach $240. Worthy of Investment?
Taiwan Semiconductor Manufacturing (TSM) shares are hovering near their record high, and Barclays analyst Simon Coles predicts further gains within the year. Last week, Coles retained TSM's overweight (buy) recommendation and upped the price target from $215 to $240.
Investors might not take Wall Street's price targets too seriously, but in TSM's case, there's a potent catalyst that could drive shares higher in the short term: artificial intelligence (AI). Here's why the analyst might be spot on with his price projection.
The surge in AI chip demand ain't slowing down
During the third-quarter earnings call, management revealed a surge in demand for AI server processors, which encompass graphics processing units (GPUs) and other chips utilized for AI training. They anticipate a significant revenue increase from these chips for the entire year, with a projected tripling of their contribution.
Although AI chip revenue is slated to account for a mid-teens percentage of 2024 revenue, TSMC is also witnessing robust growth across various business areas. In the third quarter, revenue skyrocketed by 36% year on year, with earnings per share soaring by 54%.
Despite TSM's recent price increase, its valuation stays alluring. As of now, TSM is trading at 27.1 times its current annual earnings estimate. Using the 2025 consensus estimate, its forward price-to-earnings (P/E) ratio drops even lower at just 21.5. Given TSM's superior revenue and earnings growth, this P/E ratio seems unjustifiably low compared to the S&P 500 index's typical forward P/E of 23.9.
Of course, market demands can shift unexpectedly due to the chip industry's cyclical nature. But with the recent potential of the AI chip market, TSMC appears likely to continue delivering strong growth in 2025 and beyond, making it a strong investment choice.
With the ongoing surge in AI chip demand, investors might consider increasing their holdings in TSM to capitalize on its potential growth. This surge in AI chip demand, as revealed by management, is driven by a significant increase in revenue from AI server processors, including GPUs, with a projected tripling of their contribution for the year. Moreover, TSM's forward price-to-earnings (P/E) ratio of 21.5, based on the 2025 consensus estimate, seems undervalued compared to the S&P 500 index's typical forward P/E of 23.9, indicating a potential for significant returns through investing in TSM shares.