Up 100% This Year, This Tech Stock Just Joined the Trillion-Dollar Club. Should You Invest Now?

Plenty of notable companies have had a good 2024, but few have had as good a year as Taiwan Semiconductor Manufacturing Company (NYSE: TSM) (TSMC). The world's leading semiconductor company has seen its stock price double this year, with plenty of momentum on its side.

Going from a $500 billion company to a $1 trillion company is no small feat, but that's exactly what TSMC has managed to do this year. It joins an elite club consisting of only eight other companies.

Given TSMC's success this year and recent surge, it's fair for investors to wonder if they've missed the train and should wait for a potential pullback. That said, if you're looking to invest in TSMC, there's no better time than now. Let's take a look at why.

The beginning of the AI pipeline

Few, if any, topics have commanded as much attention in the business world over the past couple of years as artificial intelligence (AI). The success of ChatGPT and other generative AI tools have brought it to the mainstream, but companies from virtually all industries have been figuring out how to use it for their businesses.

TSMC probably isn't at the top of your mind when you think about AI stocks, but it plays just as important a role in the ecosystem as virtually any other company. Its semiconductors are vital parts of graphics processing units (GPUs), data centers, and AI accelerators, all of which are critical to training and powering AI applications.

That's why companies like Nvidia (the most important GPU maker) rely so heavily on TSMC. Its advanced chipmaking abilities and production scale are unmatched.

TSMC has surging finances to back its increased demand

TSMC's third quarter (ended Sept. 30) confirmed that the AI hype is real and having tangible effects on its financials. The company's revenue increased 36% year over year to $23.5 billion, and its operating income increased by over 47% year over year to $11.1 billion.

Both those figures cap off an impressive five-year run, where both have more than doubled.

TSM Revenue (Quarterly) data by YCharts.

TSMC's high-performance computing segment -- which includes AI chips -- made up more than half of its third-quarter revenue. It expects revenue from its semiconductors used in AI processors and servers to triple this year, accounting for around a "mid-teen percent" of its total revenue. That's a big deal.

The semiconductor giant isn't just making more money, either; it's doing so more efficiently. Its 57.8% gross margin is up 3.5% from 54.3% in Q3 2023. According to its chief financial officer, this is due to its "higher capacity utilization rate and cost improvement efforts." In other words, it's using more of its production capabilities.

TSMC expects its fourth-quarter revenue to come in between $26.1 billion and $26.9 billion, with gross profit margins between 57% and 59%.

Premium pricing for a premium company

With TSMC's stock price growth this year, it's no surprise that the company is now priced at a premium. It's trading at just more than 32 times earnings, noticeably more than its average over the past five years.

TSM PE Ratio data by YCharts.

It's not quite the 41 times earnings it was trading at in early 2021, but it's far from cheap, that's for sure.

The valuation shouldn't deter investors, though. World-class companies often come with premium pricing, especially those with a spotlight on them, like TSMC. It could possibly limit some of the short-term growth potential, but TSMC is still well-positioned to be a force for the long haul.

With around a 90% market share of the advanced semiconductor market, TSMC is in a league of its own, and the company likely won't be legitimately challenged in the foreseeable future. If you're worried about investing in the stock while it's at its all-time high, consider dollar-cost averaging your way into a stake.

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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.