A 10/10 Buffett Gem - InvestingChannel

A 10/10 Buffett Gem

Proprietary Data Insights

Financial Pros Top Semiconductor Stock Searches in the Last Month

#2Advanced Micro Devices2,678
#3Taiwan Semiconductor Manufacturing Company1,910


A 10/10 Buffett Gem

In Q3 2022, Warren Buffett’s company, Berkshire Hathaway, bought over 60 million shares of Taiwan Semiconductor Manufacturing (TSM)

TSM is one of financial pros’ most searched semiconductor stocks, according to our proprietary Trackstar database. 

And after the company’s Q4 earnings announcement on January 12, which included a fairly upbeat forecast from management, search volume spiked.

It might have to do with Buffett being a shareholder, the company’s 44.9% profit margins, and/or its $52.4 billion in net operating cash flow. 

If TSM is a good enough stock for Buffett, is it good enough for you? 

Taiwan Semiconductor’s Business

Taiwan Semiconductor has the world’s largest semiconductor foundry, the part of the semiconductor supply chain that manufactures chips. TSM enables roughly 85% of worldwide semiconductor startup product prototypes. 

The company produces 12,302 products and employs 291 process technologies to serve hundreds of big-name customers with the world’s largest logic capacity. Excluding memory, TSM has 26% of the semiconductor market share. Across nearly every measure, it’s the largest semiconductor company in the world.


Source: Taiwan Semiconductor

TSM’s clients include some of the world’s largest tech companies, such as Apple, Qualcomm (#4 in financial pros’ semiconductor stock searches), and Huawei.

TSM accounts for about 90% of the world’s super-advanced computer chips. Management plans to bring its most advanced chip manufacturing to Arizona in efforts to reduce delivery time along its supply chain.

The company made $19.9 billion in revenues during Q4 2022, a jump of 26.7% from Q4 2021. 

The firm offered the following guidance for Q1 2023:

  • It expects revenue to be between $16.7 and $17.5 billion
  • It expects gross profit margin to be between 53.5% and 55.5%
  • It expects operating profit margin to be between 41.5% and 43.5%

Much of the company’s optimism stems from tech companies’ upgrade cycle to more advanced chipsets as these companies vie for the top spot in their industries.



Financials are in millions of Taiwan dollars. Source: Stock Analysis

TSM is financially stable, with a current ratio of 2.2x.  

In Q4, revenues increased by 42.8%, and its net profit margin improved by 27.9% as demand for semiconductors outpaced supply.

Moreover, its diluted EPS soared 82.6%. Operating income eclipsed 2021 by 77.6%. 

TSM’s Q4 2022 gross profit margin of 62.2% turned out to be +170 basis points better than the midpoint of its earlier gross margin guidance of 60.5%.

Impressive figures like that are what attracted Warren Buffett to TSM. In Q3 2022, Berkshire Hathaway bought 60.1 million shares of Taiwan Semiconductor – a stock that pays a steady income with an annual dividend of $1.78 per share. 



Source: Seeking Alpha

TSM trades at a 13.0x P/E GAAP ratio, notably lower than peers Nvidia (NVDA) at 75.7x, Broadcom (AVGO) at 21.5x, and Advanced Micro Devices (AMD) at 45.4x. Qualcomm (QCOM) is cheaper, with a P/E GAAP ratio of 10.8x.  

It’s worth noting that TSM has 3x the market cap of QCOM and operates at a greater scale than QCOM…

…so it’s larger and cheaper.

Taiwan Semiconductor generates $52.4 billion in cash from its operations, significantly more than NVDA at $6.4 billion, AVGO at $16.7 billion, QCOM at $9.1 billion, and AMD at $3.8 billion. 

Additionally, TSM has a price-to-cash flow ratio of 8.2x, much lower than NVDA at 68.3x, AVGO at 14.2x, QCOM at 15.2x, and AMD at 29.6x. 



Source: Seeking Alpha 

Taiwan Semiconductor’s net income margin of 44.9% is head and shoulders above its peers. QCOM is the second-highest at 34.6%, followed by QCOM at 29.3%, NVDA at 20.9%, and AMD at 9.9%. Furthermore, TSM has a 49.5% EBIT margin, notably higher than NVDA at 25.5%, AVGO at 43.0%, QCOM at 35.9%, and AMD at 13.1%. 

TSM plans to raise prices in 2023. It holds a near monopoly on advanced nodes, an area of the semiconductor space with insane growth. Advanced nodes give smartphones more powerful hardware, storage, and software capabilities. This is the growth that spurred the upbeat forecast.



Source: Seeking Alpha

TSM grew revenues 42.6% YoY, which is impressive compared to NVDA at 17.7%, AVGO at 20.9%, and QCOM at 31.7%. AMD grew revenues more at 53.7%. But AMD is 3.8x smaller than TSM. When you account for size, TSM’s growth numbers are downright eye-popping. 

There’s a lot of uncertainty in the semiconductor sector, including a global economic slowdown, supply disruptions, and geopolitical tensions between the U.S. and China. But TSM should grow revenues in 2023 as it starts raising prices. 

Our Opinion 10/10

TSM accounts for an estimated 90% of the world’s super-advanced computer chips. 

The company commands solid financials and robust profitability, and it pays a healthy dividend funded by cash, not debt. 

It trades at a discount in terms of P/E compared to most of its peers. 

No wonder Warren Buffett added it to his Berkshire Hathaway portfolio. 

The semiconductor sector incurred a massive correction over the last year, but we see it as a buying opportunity. 

We like TSM at these levels and rate the stock a strong buy.

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