The Hidden Gem Amidst Apple's iPhone 16 Buzz: TSMC
Despite initial concerns about Apple’s newest iPhone models, recent data indicates Apple’s iPhone 16 is off to a strong start, particularly in markets like India, where sales surged by 15-20% on launch day. This contrasted with fears of weaker demand, showing the robust potential for Apple's latest offerings. But beyond the direct benefits for Apple, there’s another player in the tech ecosystem that stands to gain significantly: Taiwan Semiconductor Manufacturing Company (TSMC).
A Significant Upgrade Cycle for Apple
According to Counterpoint Research, India's impressive 35% sales increase in fiscal 2024 sets a promising precedent for Apple's newest models. T-Mobile's CEO also confirms better sales for the iPhone 16 this year compared to last year. A significant factor is Apple's massive install base, with over 300 million iPhones not upgraded in the past four years. This presents a fertile ground for significant sales growth as these users begin to embrace Apple's new AI-enabled smartphones.
Why TSMC is Poised to Benefit
Apple's new iPhones, powered by the A18 and A18 Pro chips, are designed using TSMC's advanced 3-nanometer (nm) process technology. This partnership is crucial as these chips offer 15-30% performance improvements while being more energy-efficient, essential for supporting Apple’s new AI features. TSMC's revenue saw a dramatic increase in the months leading up to the iPhone 16's release, reflecting Apple's production ramp-up.
Not only is Apple TSMC’s largest client, but the close relationship also means steady business growth for TSMC. For example, in 2023, Apple purchased TSMC's entire annual 3nm manufacturing capacity, and reports suggest a similar arrangement for TSMC’s 2nm capacity for the 2025 iPhones. This kind of strategic partnership ensures TSMC remains a central figure in Apple's supply chain, guaranteeing continuous revenue streams.
TSMC’s Broad Growth Outlook
Nvidia, another significant TSMC customer, also profits from TSMC’s advanced chip-making capabilities, especially for AI technologies. As TSMC continues to bolster its position in the AI chip market, its relationship with both Nvidia and Apple fortifies its future revenue prospects. Analysts anticipate a robust increase in TSMC's revenue over the next three years, with Apple playing a critical role.
Investment Perspective
Currently, TSMC trades at a more attractive valuation compared to Apple, making it a lucrative investment opportunity. TSMC’s trailing price-to-earnings ratio is 31, with a forward P/E of 21. In comparison, Apple trades at 34 and 30 times trailing and forward earnings, respectively. This makes TSMC a cost-effective way to gain exposure to not just Apple’s growth, but the entire AI chip market.
As TSMC has already seen a 75% gain in 2024, it’s worth considering the stock for potential future growth driven by its key role in the tech and AI sectors.
Taking into account its strategic importance to major tech players and its favorable valuation, TSMC appears to be a compelling buy for investors looking to capitalize on the next wave of technological advancements.
