Shares of Taiwan Semiconductor Manufacturing (TSM 0.01%) are trading up 34% year to date, and Susquehanna analyst Mehdi Hosseini sees more upside now that the chip industry is in recovery mode. The analyst maintained a positive (buy) rating on the shares, raising the price target from $160 to $180. The new target represents an upside over the next 12 months or so of nearly 28% compared to the current share price.
Here's why the analyst might be right.
Taiwan Semiconductor anticipates robust growth in 2024
TSMC is in a lucrative position because it manufactures chips for other companies, including Advanced Micro Devices and Nvidia. With the chip industry expected to return to growth this year, TSMC is poised for a big year.
Management said on the fourth-quarter earnings call that business has bottomed out. Growing demand for artificial intelligence (AI) was cited as a catalyst for improving revenue growth. For the full year, management guided for revenue growth in the low- to mid-20% range.
Digging deeper into the company's numbers, Hosseini said he sees strong demand driving higher average selling prices for TSMC's products. This should boost TSMC's earnings per share (EPS) toward $10, according to the firm's estimate. However, it might take a few years for TSMC to hit that estimate. The Wall Street consensus has the company's EPS reaching $9 in 2026.
Is TSMC stock a buy?
If TSMC reaches the analyst EPS estimate by 2026, the stock could be worth $230, assuming the shares are trading at a price-to-earnings ratio of 23, which is consistent with the stock's previous five-year average valuation. So, considering TSMC's recovery, the analyst's price target of $180 seems reasonable for the next year or so, assuming there are no hiccups in the economy.
