Investors in TSMC remain optimistic despite Warren Buffett’s caution about betting on the future of artificial intelligence
The excitement surrounding artificial intelligence is overshadowing geopolitical worries about Taiwan Semiconductor Manufacturing Co., as its stock continues to soar. Foreign investors have increased their stake in the company to a level not seen in two years, supporting TSMC’s assertion that AI will drive its growth in the coming year. Pictet Asset Management reports that TSMC holds over 90% of the market for producing advanced semiconductors used in AI technology.
The turnaround last year — the stock had fallen 27% in 2022 — came after Warren Buffett sold his $5 billion TSMC stake, citing geopolitical tensions over its location. Adding to the concern was the self-governing island’s election of US-friendly President Lai Ching-ten, bringing to power a man Beijing has described as a “warmonger”.
“While geopolitics has historically been seen as a risk to the industry, the strategic nature of these products and the desire to build local supply chains means that geopolitics is likely to become a tailwind in the space,” said Bernard Ahkong, CIO at UBS. O’Connor Global Multi-Strategy Alpha. “We are still in the early stages of this semiconductor innovation.”
A key concern for TSMC centers around its large concentration of chip manufacturing in Taiwan. The island produces most of the world’s advanced logic semiconductors, and any military escalation across the strait with China would be a heavy blow to the global supply chain.
Apart from its dominance in advanced chips, it also has more than 50 percent of the total foundry market, according to Pictet. This puts the company on track to meet or exceed its long-term growth target of 15-20 percent, Pictet’s senior client portfolio manager Anjali Bastianpillai said.
The chipmaker’s revenue rose 9.4% in the first two months as demand from growing AI business picked up, offsetting slower iPhone sales. TSMC shares more than doubled from October 2022 lows, thanks in part to gains by key customer Nvidia Corp.
By responding to the market’s concerns, the company advances in diversifying its operational base. TSMC has announced plans to build a second manufacturing facility in Japan, while its Kumamoto plant will begin production this year. The chipmaker is also building two advanced manufacturing facilities in Arizona and one in Germany.
“Despite geopolitical concerns, TSMC is a fundamental building block for exposure to AI and the broader semiconductor recovery, as there are no comparable quality companies in emerging markets,” Allspring Intrinsic Emerging portfolio manager Gary Tan said. Market Equity.
