The AI Revolution’s $1 Trillion Powerhouse: Why TSMC’s Stock Split Could Be Imminent
As of January 17, the exclusive trillion-dollar club boasts 10 members, with Warren Buffett’s Berkshire Hathaway being the only exception not deeply invested in the artificial intelligence (AI) revolution. Taiwan Semiconductor Manufacturing (NYSE: TSM) recently joined the elite group, with its market capitalization surging 110% over the past year.
A Skyrocketing Valuation
TSMC’s share price has reached $213, nearing its 52-week high. The company’s market capitalization has essentially doubled in just 12 months, from approximately $500 billion to over $1 trillion today. This remarkable growth has sparked speculation about a potential stock split.
The Case for a Stock Split
When a company splits its stock, the number of outstanding shares increases, but the overall valuation remains unchanged. A stock split can be a bullish signal, indicating management’s confidence in the company’s long-term prospects. With TSMC’s valuation expansion, a stock split could be a reasonable move to make.
TSMC’s Unique Position in the Chip Realm
As a leading chip fabricator, TSMC plays a crucial role in bringing chips from industry giants like Nvidia, Advanced Micro Devices, and others to life. The company is poised to benefit from the trillions of dollars invested in AI infrastructure over the coming years. The total addressable market for GPUs is expected to reach nearly $300 billion by the end of the decade.
Is TSMC’s Stock Expensive?
At over $200 per share, TSMC’s stock may seem pricey. However, looking at the share price alone is misleading. To determine if TSMC’s stock is expensive, it’s essential to examine valuation multiples. The company’s forward price-to-earnings (P/E) ratio of 23.4 is nearly identical to that of the average forward P/E for the S&P 500. This suggests that investors view TSMC as having the same upside as the broader market.
A Compelling Opportunity
Given the upside from rising investment in AI capital expenditure over the next several years, I believe shares of TSMC will eventually receive a notable premium compared to the S&P 500. For these reasons, I see TSMC as a compelling opportunity to buy and hold for the long run, regardless of a potential stock split.
Expert Insights
Before investing in TSMC, consider the expert analysis from The Motley Fool’s Stock Advisor team. They’ve identified what they believe are the 10 best stocks for investors to buy now, and TSMC wasn’t one of them. These top picks could produce monster returns in the coming years.
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