Taiwan Semiconductor Manufacturing (TSM -1.22%) has enjoyed a stellar run on the stock market in the past year, clocking gains of 87% as of this writing, and it looks like the foundry giant is set to deliver another terrific year to investors in 2025.
Popularly known as TSMC, the company has seen its shares jump almost 4% following the release of its fourth-quarter 2024 results on Jan. 16. TSMC not only beat estimates but also issued solid guidance for the first quarter of 2025 that turned out to be better than Wall Street's expectations.
However, investors may be wondering if it makes sense to buy this semiconductor stock following the outstanding gains it has delivered in the past year. Let's explore and seek an answer.
Results and long-term guidance point toward more stock upside
TSMC delivered Q4 2024 revenue of $26.9 billion, which was a big improvement of 37% over the year-ago quarter. Its adjusted earnings increased at a much faster pace of 55% to $2.24 per share. TSMC beat Wall Street's expectations on both counts, but more importantly, its revenue guidance of $25 billion to $25.8 billion for Q1 was 6% higher than expectations.
For the full year, TSMC reported just over $90 billion in revenue, an increase of almost 30% from 2023 levels. The midpoint of its Q1 revenue guidance points toward a year-over-year increase of 35%, suggesting that TSMC could end up delivering stronger growth in 2025 even though management has called for full-year revenue growth in the mid-20% range.
At the same time, investors can expect TSMC's earnings to grow at an impressive rate once again. That's because the company is expecting its gross margin to land at 58% in the current quarter at the midpoint, which would be a significant improvement over the 53.1% reading in the same quarter last year. Looking at the longer term, TSMC estimates that its revenue from artificial intelligence (AI) chips is likely to expand at a compound annual growth rate (CAGR) of 40% over the next five years.
Meanwhile, it anticipates its overall revenue increasing at a CAGR of 20% for the next five years, indicating that this semiconductor bellwether's robust growth is set to continue beyond 2025 as well. All this isn't surprising, as TSMC believes that the secular growth opportunities in high-performance computing (HPC), AI, 5G smartphones, and personal computers (PCs) in the coming years will be tailwinds for the company as they will lead to an expansion in the semiconductor market.
According to market research firm SNS Insider, the global semiconductor market could generate $1.47 trillion in revenue in 2030 as compared to $729 billion in 2022. TSMC's dominant share of 64% in the global foundry market means that it is in a solid position to make the most of this growth opportunity. After all, TSMC manufactures chips for top chip designers such as Nvidia, AMD, Qualcomm, and Broadcom, along with consumer electronics giants such as Sony and Apple.
It is also worth noting that TSMC management believes the recent export restrictions proposed by the U.S. government on sales of chips to China would be "manageable," which explains why the company's outlook for both the short and the long run is upbeat.
Should investors be buying the stock now?
TSMC stock's terrific appreciation in the past year explains why it is now trading at 33 times trailing earnings, which is higher than its five-year average earnings multiple of 22. However, the forward price-to-earnings ratio of just 24 points toward a significant jump in its bottom line, and it is lower than the tech-laden Nasdaq-100 index's forward earnings multiple of 25.
So, investors are still getting a good deal on TSMC stock right now even after the healthy gains that the stock has clocked in the past year. Given the company's bright outlook for 2025 and the next five years, it can be concluded that it isn't too late to buy this semiconductor bellwether yet.
