With many shares coming off the boil in latest weeks, alternatives have began to seem. One I see is in Taiwan Semiconductor Manufacturing Firm (NYSE: TSM), a progress firm that’s buying and selling close to worth inventory ranges after falling 21% in two months.

Long run although, shares of Taiwan Semiconductor, or TSMC, have achieved splendidly. They’ve soared greater than 300% in six years, because the agency’s main place manufacturing superior microchips has made it integral to the digital revolution.

Just lately, TSMC’s progress has been boosted by the unreal intelligence (AI) increase. It really works carefully with Superior Micro Units, Nvidia, Broadcom, OpenAI, and others, whereas additionally making the most recent chips powering Apple’s iPhone 16 lineup.

Certainly, TSMC now instructions roughly 67% of the worldwide third-party foundry market — and greater than 90% of superior chips!

Surging AI demand

How is that translating into income? Very properly. Final yr, income elevated 30% yr on yr to $90.1bn, whereas earnings per share surged by nearly 40%. The online revenue margin reached an unimaginable 40.5%, up from 38.8% the yr earlier than.

Nonetheless, it wasn’t all constructive. Each its Web of Issues (IoT) and digital client electronics platform segments decreased 15% and 6%, respectively, within the fourth quarter. And the agency does nonetheless expertise cyclical demand for auto, laptop, and smartphone chip gross sales.

But any softness in components of the enterprise is definitely being offset by surging demand for AI chips.

Chief govt CC Wei commented: “Even after more than tripling in 2024, we forecast our revenue from AI accelerators to double in 2025 as a strong surge in AI-related demand continues as a key enabler of AI applications.”

Weakening silicon protect

One unavoidable danger with TSMC is geopolitics. Its most superior chip manufacturing — together with its 3nm and upcoming 2nm nodes — nonetheless takes place in Taiwan, roughly 90 miles away from mainland China.

Traditionally, Taiwan’s dominance in chipmaking has arguably protected the island from a Chinese language invasion (the so-called “silicon shield”). That’s as a result of the consequence can be a chip scarcity and chaos in international commerce, thereby threatening China’s personal prosperity. 

To cut back dependence on Taiwan, President Trump has inspired TSMC to set up superior fabrication services within the US. Whereas this improves provide chain resilience for US clients, it may also weaken the silicon protect. 

In different phrases, if TSMC’s cutting-edge chipmaking strikes overseas, Taiwan turns into much less important — and probably much less protected.

In the meantime, the corporate’s colossal $165bn dedication (to this point) to US manufacturing and research and growth may result in margin strain down the street.

Discount valuation

This dynamic may go some option to explaining the inventory’s valuation. It’s at the moment buying and selling at 16.5 instances this yr’s forecast earnings, falling to round 14 for 2026 and 11.5 by 2027.

Granted, there are geopolitical dangers right here, however this high-quality inventory seems prefer it’s on sale to me. Particularly as TSMC is ready for additional progress via its enabling of growing megatrends like AI, IoT, and robotics.

Additionally, electrical and autonomous automobiles require many extra semiconductors than petrol automobiles. Tesla collaborates with TSMC to provide chips for its Full Self-Driving system.

Sadly, TSMC shares aren’t eligible for a Shares and Shares ISA. However I believe they’re effectively price contemplating for a self-invested private pension (SIPP).