In the dynamic and highly competitive world of semiconductor technology, Taiwan Semiconductor Manufacturing Company (NYSE: TSM ) stands tall, setting new standards with its advanced chip manufacturing nodes. TSMC's strategic approach to developing and deploying state-of-the-art 3nm and 5nm technologies has solidified its market dominance and significantly increased its wafer revenue. This trend is particularly evident in the revenue breakdown for Q3 2023, where advanced nodes played a key role, accounting for 59% of total wafer revenue.

TSMC offers a unique investment opportunity combining value and growth. It's undervalued compared to historical and industry averages, and solid technical indicators give it room for potential price appreciation. TSMC’s fundamental strength, strategic positioning in the semiconductor industry, and technological resilience make it a compellingInvest for the long term.


TSMC's dominance in cutting-edge semiconductor technology is critical to its value growth. This can be seen from the fact that the company has continuously launched advanced nodes such as N3 and N5 technologies, which have made a huge contribution to wafer revenue.

For example, the breakdown of revenue by node in Q3 2023 shows the increasing importance of more advanced nodes. N3 contributed 6% of wafer revenue, while N5 and 7nm accounted for 37% and 16% respectively. Therefore, these advanced nodes, defined as 7nm and below, account for 59% of wafer revenue.

The continuous enhancement of 3nm process technology strengthens TSMC's strategy to meet the changing needs of customers. The company's assertion of stable multi-year demand for its 3nm family of products demonstrates a well-structured approach to meeting ongoing technology requirements. Advantageously, TSMC's ability to continuously launch advanced nodes has allowed it to maintain its position as an industry leader, attracting diverse customers in various fields, including high-performance computing (HPC) and smartphone applications.


Notably, TSMC's revenue growth was strong, with third-quarter revenue reaching $17.3 billion, in line with the company's guidance in U.S. dollars. Despite challenges such as customers' continued inventory adjustments, substantial growth in 3-nanometer technology and increased demand for 5-nanometer technology drove revenue growth. As a result, the company's gross margin also expanded to 54.3%, reflecting improved capacity utilization despite slight dilution in N3 capacity utilization. Therefore, the improvement in gross margin highlights TSMC's operating efficiency.

Bottom line, in the third quarterEarnings per share were NT$8.14, or $1.29, and return on equity (ROE) was 25.8%, highlighting the company's profitability and financial strength. These numbers demonstrate TSMC's ability to generate earnings for shareholders and use its resources efficiently to maintain healthy investment returns.

Looking ahead, TSMC's focus on R&D comes from increased operating expenses, which accounted for 12.6% of net revenue. The higher R&D expenses are to support the development of 3nm and 2nm technologies. These research and innovations are in line with TSMC's long-term strategy of staying at the forefront of semiconductor (foundry) technology. The company's investment in cutting-edge research aims to push the boundaries of technology and introduce advanced nodes to meet the evolving needs of various industries.

Overall, TSMC’s emphasis on innovation is reflected in its strategic approach to developing N3E, an enhanced version of N3, leveraging the solid foundation of N3 technology to deliver enhanced performance, power efficiency and yield. In addition, ongoing efforts to further enhance N3 technologies, including N3P and N3X, underscore the company's leadership in continuous improvement and innovation in casting processes.

Finally, TSMC maintains its solid position as the global leader in the semiconductor foundry market, accounting for a staggering approximately 60% revenue share. The semiconductor industry is highly concentrated, with the top 10 foundry companies accounting for 98% of the industry's total revenue.


Looking at future strategic initiatives, TSMC’s technology roadmap includes the development of 2-nanometer technology, which is expected to be launched in 2025. This future technology is expected to be state-of-the-art in terms of density and energy efficiency to meet the growing demand for energy-efficient computing solutions. The company's N2 strategic vision involves the adoption of nanosheet transistor structures, a technology that promises significant improvements in performance and power efficiency.

In addition, strong demand for advanced nodes drives TSMC’s strategic approach to capacity planning. As a result, the company's outlook for capital expenditures (CapEx) and capacity expansion over the next one to two years is influenced by strong demand for N3 and expected growth in N2. However, TSMC maintains a cautious stance, considering that more advanced nodes such as N2 may cost more than N3 (similar to 7nm to 5nm).


Specifically, TSMC's strong capital expenditure strategy allocates approximately 70% of approximately $32 billion in capital expenditures in 2023 to advanced process technologies. This strategic focus on cutting-edge processes demonstrates the company's commitment to maintaining technology leadership in the semiconductor industry.

In addition, a prudent 20% is used for professional technology and 10% for advanced packaging, testing, mask manufacturing and other key aspects. This disciplined allocation reflects TSMC's efficient capital planning aimed at driving growth through technological advancements across its product lines.

On the downside, TSMC has encountered challenges in some areas, such as declining revenue from 7-nanometer technology due to lower-than-expected utilization. Factors affecting this decline include lower demand for smartphones and delayed product launches by major customers.

However, TSMC remains optimistic about the future and is committed to improving utilization by leveraging consumer-specific needs, radio frequency (RF) and connectivity applications. The company's experience in solving similar situations, such as its approach with 28nm technology in 2011, demonstrates its ability to adapt and exploit products at the edge of the market.

At the bottom level, TSMC is observing strong customer interest and engagement in its 2nm technology, which is on par or higher than N3 at similar stages. The company's positive interactions with customers early in the technology life cycle reflect positive market acceptance of its future products.

For example, an expected partnership with Intel (INTC) will make TSMC a significant supplier of 3nm chips, marking a strategic collaboration. Intel expects 3nm chip orders to be worth $14 billion in 2024 and 2025, indicating TSMC's growing role as Intel's foundry partner.

Ultimately, this partnership makes TSMC a key player in Intel's aggressive node introduction strategy, potentially making TSMC Intel's second-largest customer for 3nm chips in 2025. Expected to produce 15,000 wafers per month by the end of 2024, doubling to 30,000 wafers by 2025. The 3nm node further solidifies TSMC's foothold to cultivate aggressive revenue growth.

Comparing the company's valuation based on its trailing 12-month price-to-earnings ratio, TSMC is undervalued compared to peers such as Broadcom, Texas Instruments, and Qualcomm. Likewise, considering absolute valuation, the stock is 67% undervalued compared to the historical average of 5-year P/E ratios, with a current P/E ratio of 54x and a current P/E ratio of nearly 18x. In the longer term, mean reversion may push prices higher to match historical averages.


Technically, the stock is in Buy mode (performing the oscillator), hovering between the 52-week and 260-week movesabove the moving average. In the medium term, based on current momentum, the price could hit $145,Resistance levels are at $108 and $122. $145 is a mid-term resistance level based on Fibonacci retracement.

Shares are likely to find support at the $93 pivot in the coming weeks, with the 52-week moving average acting as the dynamicSupport level. In the short term, amid heightened volatility in Taiwan-China-U.S. relations, gold prices may retest the support level of $86, which is more likely, while $77.30 is less likely, as the 260-week moving average is a solid long-term support.


TSMC stands out in the semiconductor industry and continues to push the technology frontier with its advanced N3 and N5. These innovations solidify its market leadership and drive revenue growth, as evidenced by its recent financial results.

TSMC’s strategic investments and partnerships, coupled with its proactive approach to R&D and capacity expansion, especially in emerging technologies such as the 2-nanometer node, are consistent with its vision to meet the changing needs of the high-tech world.

Despite near-term market volatility and operational challenges, TSMC's financial strength undervalues ​​the stock's position, while positive technical indicators paint a promising picture for investors. This combination of value and growth potential makes TSMC a compelling choice for those looking to invest in a company that is at the forefront of technological innovation and industry leadership.