One Wall Street analyst sees 28% upside in Taiwan semiconductor manufacturing stocks

Taiwan Semiconductor Manufacturing Co.corporation(NYSE: TSM)Shares of the company have risen 34% so far this year, and analyst Mehdi Hosseini at Susquehanna sees even more upside as the chip industry moves into compounding mode. The analyst maintains a Positive (Buy) rating on the stock and raised his price target to $180 from $160. The new price target implies an upside of nearly 28% over the next 12 months or so, compared to the current share price.

Here's why this analyst may be right.

Taiwan's Semiconductors Expected to Grow Strongly in 2024

TSMC is in a lucrative position because it produces chips for other companies includingAdvanced Micro Devices, Inc. Advanced Micro Devices(math.) andNvidia). With the chip industry expected to resume growth this year, TSMC is poised for a big year.

Koon's management said on the Q4 earnings call that the business has bottomed out. Growing demand for Artificial Intelligence (AI) was cited as the catalyst for the improvement in revenue growth. Mr. Koon expects full year revenue growth to be around 20%.

Hosseini analyzed the company's data in depth and concluded that strong demand is driving up the average selling price of TSMC's products. According to the company's estimates, this would boost TSMC's earnings per share (EPS) to $10. However, it may take a few years for TSMC to meet this expectation. According to Wall Street consensus, the company's EPS will reach $9 by 2026.

Buy TSMC stock?

If TSMC achieves analysts' projected EPS in 2026, the stock would be worth US$230, assuming a P/E ratio of US$23, which is in line with the stock's average valuation over the previous five years. Therefore, given TSMC's resilient posture, it seems reasonable for analysts to set a target price of $180 for its shares in the next year or so, assuming there are no twists and turns in the economy.

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John Ballard owns shares of Advanced Micro Devices and Nvidia. the Motley Fool owns shares of recommended Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing Company, Ltd. The Motley Fool has a disclosure policy.

A Wall Street Analyst Says Taiwan Semiconductor Manufacturing Company's Stock Has 28% of Upside was originally published by The Motley Fool.