Taiwan Semiconductor Announces a $100 Billion U.S. Investment. Is The Stock a Buy?

Taiwan Semiconductor Manufacturing (NYSE: TSM) (TSMC) made headlines recently when it announced an additional $100 billion investment in U.S. production facilities. This is huge news for the company, as it helps ease one of the biggest investment concerns Wall Street has with TSMC.

Furthermore, it likely prevents Taiwan Semiconductor from being the target of tariffs, which makes it a unique company in the current investing landscape. As a result, I think the stock is a screaming buy, as there is a ton going for it right now.

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The latest announcement is great news for shareholders

It's not hard to figure out why Taiwan Semiconductor announced $100 billion in new infrastructure spending. The new buildout includes three fabrication facilities, two packaging facilities, and a research and development center.

While some may point to pressure from U.S. President Donald Trump and his threat of tariffs as the cause of this announcement, Taiwan's president has denied this suggestion. Instead, he points to comments by TSMC's CEO, C.C. Wei, that the current U.S. production investments aren't enough to satisfy the chip demand from U.S. companies.

Still, this may be what Trump needs to avoid placing tariffs on Taiwan, which is a win-win for both countries and investors.

One of the biggest investment risks with Taiwan Semi is the potential for mainland China to take over the island of Taiwan through force. This would send shockwaves through the economy, and devastate TSMC shareholders. As Taiwan Semiconductor diversifies its production footprint, these fears are eased a bit.

Another factor in play with the U.S. expansion is that TSMC needed to increase its production capacity. During its Q4 conference call, Taiwan Semi's management stated that they expect AI-related revenue to rise at around a 45% compound annual growth rate (CAGR) over the next five years. Companywide, that growth rate is expected to reach nearly 20%, so there is clearly a huge demand wave approaching.

Taiwan Semiconductor's management is in a unique position to see where the industry is heading because many of these chip orders are placed years in advance. As a result, they have unparalleled vision into the future for chip demand, and when they speak, investors should listen.

The latest sell-off has driven Taiwan Semiconductor's stock to dirt cheap prices, making now an excellent time to take a position in the world's largest chip producer.

The stock looks like an absolute bargain at its current price

Taiwan Semiconductor has been hit rather hard in this sell-off and is down around 20% from its all-time high. Its valuation has also reached recent lows, and the stock trades for 26 times trailing earnings and 20 times forward earnings.

TSM PE Ratio (Forward) data by YCharts.

The broader market, measured by the S&P 500, trades for 23.9 times trailing earnings and 21.6 times forward earnings. This means that Taiwan Semi is priced about the same as the average stock. However, this comparison doesn't make much sense, because we know that TSMC is projected to grow at around a 20% pace over the next five years. Historically, the market has averaged around 10% returns, so TSMC should be able to put up market-crushing returns over the next few years.

With that in mind, I think investors should make the smart move and load up on Taiwan Semiconductor stock while it's down from its high. A ton of tailwinds are blowing in its favor, and it looks like it sidestepped the event that caused the broader market to sell off in the first place (tariffs).

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Keithen Drury has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.