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Thanks to the growing market demand for semiconductors, Taiwan Semiconductor Manufacturing Co., Ltd. (TSM) has a market value of US$600 billion, making it the most valuable company in Asia.
Globally, TSMC ranks ninth, just behind Warren Buffett’s Berkshire Hathaway Inc., according to data from S&P Global Market Intelligence based on the most recent available closing prices. The company was knocked off the top spot in Asia by market value by China’s Tencent Holdings Ltd., which has been hurt by Beijing’s ongoing crackdown on its tech giants.
As of Tuesday's close, Tencent's market value was about $569 billion. FactSet data shows that TSMC's market value has been higher than Tencent's since December 15 last year. Before that, TSMC's market value briefly surpassed Tencent several times after early August last year but was subsequently overtaken.
TSMC's chips are used in countless products, including iPhones, computers and cars. According to information from Capital Economics, which is based on data published by the Semiconductor Industry Association, TSMC produces more than 90% of the world's most complex semiconductors. The transistors in these chips are less than one thousandth the width of a human hair.
TSMC, based in Hsinchu, Taiwan, is the world’s largest contract chip maker and one of the most important companies in developing markets for global investors. It is the largest single component of the influential MSCI Emerging Markets Index, with a weighting of nearly 7% as of the end of December, according to MSCI Inc.
The company said this month it set its 2022 capital spending budget at $40 billion to $44 billion, an all-time high, compared with last year's $30 billion, as demand continues to surge amid tight global chip supplies.
TSMC Chief Executive CC Wei said this month that he expects the company’s revenue this year to be at least 25% higher than last year’s record NT$1.59 trillion ($57 billion).
Analysts and investors say TSMC’s market value is justified by its technological advantages over rivals such as Intel Corp. and Samsung Electronics Co., and the ubiquity of its chips. TSMC also makes chips for some Intel rivals, including Advanced Micro Devices Inc. and Nvidia Corp.
“The technology gap between TSMC and its competitors is widening,” said Thomas Wong, founder and chief investment officer of Optimas Capital Ltd. “That’s why we like the stock.” Optimas, which owns TSMC shares, is a hedge fund manager that specializes in long-short stock investing, or buying some stocks while betting that others will fall.
Wong also said TSMC has benefited from U.S.-China trade tensions, which have made it harder for Chinese chipmakers to catch up technologically.
As of Tuesday’s close, TSMC’s shares have risen about 4% so far this year, though gains have pared back since a Jan. 17 peak as global markets have generally retreated. TSMC is traded in Taipei and on the New York Stock Exchange as American depositary receipts.
Investors in the near term are likely to focus on broader issues affecting stocks, such as inflation and expectations that the Federal Reserve will raise interest rates more quickly, said Jeff Pu, Greater China technology analyst at Haitong International Securities Group Ltd.
TSMC is not immune to the semiconductor industry cycle. Morgan Stanley recently raised its target price for TSMC by 4.9% to NT$648 (about US$23.4), slightly higher than Tuesday's closing price of NT$641.
The bank said that if demand slows, TSMC will face the risk of shrinking inventory value. In January 2019, TSMC lowered its performance expectations due to the weakening macroeconomic environment, seasonal factors in the mobile phone market and large inventories.
Shares of Chinese internet companies such as Tencent and Alibaba Group Holding Ltd. took a hit last year as China imposed a raft of new rules and issued a string of fines to clean up the industry. Tencent, whose valuation relies in part on its massive investments in other tech companies, has reduced its stakes in two major assets, JD.com Inc. and Sea Ltd. Analysts say Tencent could face pressure to divest more assets.
Some investors are bullish on both Tencent and TSMC. Richard Clode, a portfolio manager at Janus Henderson Investors, said a fund he manages has reinvested in Tencent after selling the stock in early 2021 due to regulatory and valuation concerns, and he believes that regulatory challenges will ease at some point. Meanwhile, TSMC is one of the fund's top 10 holdings, and Clode praised TSMC's capital spending plan as a growth signal.
*Disclaimer: This article is originally written by the author. The content of the article is the author's personal opinion. Semiconductor Industry Observer reprints it only to convey a different point of view. It does not mean that Semiconductor Industry Observer agrees or supports this point of view. If you have any objections, please contact Semiconductor Industry Observer.
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