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Why Taiwan Semiconductor Manufacturing's Stock Gained 57% in 2019

By Anders Bylund - Jan 13, 2020 at 1:54PM

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Positive macro trends in the semiconductor industry met Taiwan Semi's cutting-edge manufacturing process to send share prices skyrocketing in the fall.

What happened

Shares of Taiwan Semiconductor Manufacturing (TSM 0.63%) rose 57.4% in 2019, according to data from S&P Global Market Intelligence. The company, which manufactures semiconductors on behalf of factory-less chip designers such as Advanced Micro Devices (AMD -3.28%) and Qualcomm, tracked the general market closely until September. That's where analysts and investors started waking up to a rebound in the semiconductor industry that should trigger solid growth for Taiwan Semi in the near future.

So what

Blue chip analyst firm Goldman Sachs got the party started with a conviction buy rating on Taiwan Semi's stock near the end of September, pegging the target price near $55 per share at a time when shares were changing hands for approximately $45 per share. That analyst move lifted Taiwan Semi's share prices by 5% in a single day and triggered a steady climb over the next several weeks.

When smaller analyst house Susquehanna reiterated its positive rating on the stock in December, Taiwan Semi had already surged past Goldman's price target to trade at $59 per share. Susquehanna analyst Mehdi Hosseini cited Taiwan Semi's advanced manufacturing process as a key driver of AMD's market-stomping success, arguing that the AMD story should help Taiwan Semi find more work and demand higher prices for its services in the near term.

Several robotic arms probing a single microchip as part of the chip-making process.

Image source: Getty Images.

Now what

The company has been investing billions of dollars in manufacturing systems upgrades in recent quarters and expects to keep doing so in 2020 as well, all in order to expand and support the 7-nanometer process that AMD and others are using today as well as the next-generation 5-nanometer process that will follow. These upgrades are timely due to the inflection point in end-user demand that should follow from several macro trends in today's tech industry.

"We reaffirm that 7-nanometer will contribute more than 25% of our wafer revenue in 2019 and we expect even higher percentage in 2020 due to worldwide development of 5G, accelerated demand from [high-performance computing], mobile and other application continues to grow," CEO C. C. Wei said in October's third-quarter earnings call.

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Stocks Mentioned

Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
TSM
$90.78 (0.63%) $0.57
Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
AMD
$93.50 (-3.28%) $-3.17

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