Shares of Taiwan Semiconductor Manufacturing (TSM 1.07%) gained 25.2% in January 2021, according to data from S&P Global Market Intelligence. The surge started when chip giant Intel (INTC 1.30%) talked about outsourcing some of its Core processor production to the company, and it continued when Taiwan Semi posted strong fourth-quarter results.
Intel is no stranger to using third-party chipmaking services, having sent contracts to Taiwan Semi and others for about 15% of its production needs outside the PC and server system flagship products, Core and Xeon. Adding a handful of CPU chips to that mix would be a boost to Taiwan Semi's order flows and its street cred as a provider of high-quality services. Taiwan Semi's stock rose as much as 9.2% in a two-day period as this chatter was making the rounds in early February.
One week later, the company reported fourth-quarter results and the stock soared 12.6% higher that day. Taiwan Semi's sales rose 21% year over year, and earnings jumped 33% higher. That was technically a mixed bag, falling just short of Wall Street's revenue targets while beating their bottom-line expectations, but the company also reported that its manufacturing lines are running at full capacity and Taiwan Semi will spend more than $25 billion on chip-building facility upgrades in 2021.
The maxed-out production lines at Taiwan Semi and friends are for real, creating value for their investors and pain points for a semiconductor industry that relies so heavily on their services. Taiwan Semi has promised to allocate more manufacturing time to the automobile industry in order to support that industry's recovery from the doldrums of 2020, and many other market sectors would love to forge a similar deal. So the company is building more chip-building facilities and upgrading some of its older ones, all in order to bolster its production volumes during this period of excessive demand.
I don't know about you, but this makes me more interested in semiconductor stocks in general this year. The industry is going places. Meanwhile, Taiwan Semi's stock has now gained 121% in 52 weeks, and the impressive gains make sense in the context of its strong business results.