Why Taiwan Semiconductor Manufacturing Stock Stumbled Monday Morning

Shares of Taiwan Semiconductor Manufacturing Company (NYSE: TSM), commonly called TSMC, tumbled Monday morning, falling as much as 4%. As of 11:02 a.m. ET, the stock was still down 3.9%.

Events that transpired this weekend and comments made by the semiconductor specialist's founder put some investors on edge.

Challenges ahead

At a company event this weekend, founder Morris Chang addressed the ongoing crackdown by U.S. regulators limiting the sale of the most advanced chips used for artificial intelligence (AI) to companies in China. He said that the company would face its "most severe" challenges yet in achieving growth, according to a report by Bloomberg.

"Free trade of semiconductors, particularly the most advanced semiconductors, has died," Chang said. "In such an environment, our challenge lies in how to continue to drive growth." He went on to say, "TSMC is now truly a turf all major powers want to secure."

U.S. officials and allies fear that the most advanced AI technology could end up being used by China's military, something the administration is seeking to prevent. TSMC reportedly suspended shipments to Chinese chip company Sophgo after some of its advanced processors were found in products made by Chinese telecommunications company Huawei, according to a report by Reuters.

It's not all gloom and doom

While comments of that magnitude might give investors pause, they should be taken in the context of other remarks made by TSMC officials. CEO C.C. Wei was more upbeat, noting that the company's semiconductor facility being built in Arizona is "progressing well." He remains confident in TSMC's ability to increase its technological advantages and global leadership in the industry.

Despite curbs that have been in place since last year, TSMC has continued to generate impressive growth. During the third quarter, revenue of $23.5 billion jumped 36% year over year, while earnings per share increased 54%.

Management expects the company's growth spurt to continue. TSMC is guiding for revenue of $26.5 billion, which would represent year-over-year growth of 35%.

Despite any potential challenges down the road, TSMC produces an estimated 90% of the world's most advanced processors. This puts the company in the pole position for AI-fueled growth. At just 27 times next year's growth, TSMC is attractively priced.

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