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Is TSM Stock a Solid Long Term Investment?


Different people can buy stocks for very different reasons. For example, one individual might buy stocks because they want to make money from the small changes in stock price that happen on a regular basis. This can be very risky. However, this can provide interested individuals with much more immediate results as well. Something that is important for a lot of people out there. In contrast, another individual might buy stocks with the intent of increasing their wealth in the long run. As such, they won't care about the small changes in stock price that happen on a regular basis. Instead, chances are good that they will be paying more attention to the underlying company's long-term prospects, which will presumably by its stock's long-term performance. Unsurprisingly, the stocks that are suitable for one investing approach aren't necessarily well-suited for the other investing approach. Still, what remains true is the importance of research, which is why people thinking about making a long-term investment should look into companies such as Taiwan Semiconductor with care and consideration.

What Is Taiwan Semiconductor?

Taiwan Semiconductor is one of those companies with a name that says pretty much everything about what they do. For starters, it is a Taiwanese company. In fact, Taiwan Semiconductor should be either the most famous or at least one of the most famous Taiwanese companies that can be found out there, particularly since its name has seen so much mention in recent news. Furthermore, it is involved in the design of semiconductors as well as the manufacturing of semiconductors, which are one of the core components that make modern electronics possible. At this point, it is important to mention that Taiwan Semiconductor isn't one of those semiconductor companies that use their semiconductor manufacturing capabilities for their own branded products and only for their own branded products. Instead, it is one of the biggest semiconductor companies that use their semiconductor manufacturing capabilities to produce a wide range of products for a wide range of clients. As in, Taiwan Semiconductor produces more than 10,000 products for hundreds of clients, which include well-known names such as AMD, Nvidia, and Apple. Something that should provide interested individuals with a general idea of its power within its chosen field.

It Is in a Very Important Industry

Every industry is important. After all, if a collection of businesses can be designated as an industry, chances are good that they matter to a wide range of parties for a wide range of reasons. However, it is important to note that some industries are more important than others. For example, if the agriculture industry disappeared all of a sudden, that would be very bad because of our reliance on food for our continuing existence. Similarly, if the energy industrial disappeared all of a sudden, that would also be very bad because of pretty much the same reason. Modern civilization can support the number of people that it does because of a whole bunch of interconnected systems. If such a critical supporting pillar gets kicked out in that manner, the result would be catastrophic. There have been historical examples of civilization experiencing a massive loss of support capacity. The consequence is a corresponding adjustment in the number of people who are around, which is a very euphemistic way of summing up a lot of human suffering. The disappearance of the semiconductor industry wouldn't be quite as bad as that. However, it wouldn't be that far off. As mentioned earlier, semiconductors are one of the core components that make modern electronics possible. The disappearance of the semiconductor industry would knock out numerous other industries, which would not be able to come up with true substitutes. Modern civilization might survive the ensuing chaos. However, it would be unrecognizable. Thanks to this, Taiwan Semiconductor and the rest of the semiconductor industry enjoy a certain degree of invulnerability. Economies can experience boom and bust, which can have a very real effect on these companies. However, everyone needs semiconductors at the end of the day. Something that puts certain limits on how much damage that can be done to these companies.

It Has a Very Powerful Position in a Very Important Industry

Speaking of which, it is important to note that Taiwan Semiconductor isn't just a semiconductor company. Instead, it is the semiconductor company. Taiwan Semiconductor can't exactly claim to be in a monopolistic position in its chosen field. However, it is no exaggeration to say that it is in the dominant position in its chosen field. After all, it accounts for more than 50 percent of the global market, which says a lot while saying little. Taiwan Semiconductor holds the dominant position for a number of reasons. Fundamentally, it is just better at manufacturing semiconductors than other semiconductor companies. This can be seen in how the company is producing semiconductors at sizes that other semiconductor companies are just getting started on if that. Furthermore, this can be seen in how more than one major semiconductor company has entrusted their manufacturing processes to it rather than continue handling them in-house. This is understandable because semiconductor manufacturing requires both expensive expertise and expensive equipment, meaning that semiconductor companies can save a lot of money by focusing on designing semiconductors while entrusting the manufacturing of those same semiconductors to a different company that specializes in such things. Taiwan Semiconductor was the one in the best position to capitalize upon said trend, with the result that it now controls a very powerful position in a very important industry. It may or may not be the single most important company out there, but the fact that it can even be proposed as a candidate for said role without being laughed out of the room says much about its importance on the world stage.

It Is Quite Diversified

In any case, the sheer number of companies that trust Taiwan Semiconductor for their semiconductor needs means that it is quite diversified. Essentially, it is working with such a wide range of companies that even if an entire industry sees a downturn, it won't get hit as hard because it has other revenue streams that are tied to other industries. Indeed, this exact scenario was seen in 2020, which saw the automotive industry take a huge hit. Taiwan Semiconductor was affected by that but its other revenue streams from other industries did just fine. There are industries that would hit it harder than the automotive industry did if they suffered a downturn. Even so, even a hit to the smartphone manufacturers who make up its single biggest revenue stream wouldn't be enough to send it under.

It Will Be Difficult for Anyone to Dethrone It

Speaking bluntly, it would be very difficult for anyone to dethrone Taiwan Semiconductor from its current position. It would be exaggerating to say that it would be impossible because a lot of things can change over time. However, there doesn't seem to be any plausible candidates at the moment. Semiconductor manufacturing isn't something that just anyone can get into. It takes a huge amount of expertise, experience, and equipment, meaning that those who want to break into it would need a huge amount of resources. Furthermore, any would-be competitor would need to play a lot of catch-up. Meanwhile, none of Taiwan Semiconductor's current competitors seem to be capable of catching up at the moment. As such, while the company doesn't have an invulnerable position, it does have a secure position.

International Politics

International politics is the single biggest problem that should be mentioned when it comes to Taiwan Semiconductor. For those who are unfamiliar, Taiwan's official name is the Republic of China while Mainland China's official name is the People's Republic of China. This is a result of the Chinese Civil War, which ended with a Communist victory over the Nationalists. As a result, the Communists established the People's Republic of China in Mainland China while the Nationalists continued to maintain their claim to be the Republic of China from their last refuge in Taiwan. Decades have gone by, with the result that both polities have undergone much change. However, both continue to maintain that there is one China, though for very different reasons. For those who are unfamiliar, the legitimacy of the People's Republic of China rests upon a couple of interconnected things. One would be a rejection of the Century of Humiliation from the mid 19th century to the mid 20th century, during which China was too weak to resist foreign powers. The other would be the perception that China is returning to what it perceives to be its rightful place as a world power. Under these circumstances, any attempt by Taiwan to gain de jure independence on top of its de facto independence would be seen as a fundamental challenge to the legitimacy of the People's Republic of China, particularly since it can only be made possible through the support of foreign powers.

Meanwhile, Taiwan sticks with the idea of there being one China because it is perceived to be the safer path. Since democratic reforms in the 1990s, the Nationalists have become just the most powerful party in the pan-Blue coalition, which would be the opposition to the pan-Green coalition that is currently in power. The latter is supportive of Taiwanese independence, but it hasn't taken any major steps towards Taiwanese independence because it knows that Mainland China sees it as a red line. No one really knows how far Mainland China would go if Taiwan declared independence. However, no one really wants to find out because of the potential consequences. The chances of military conflict between Mainland China and Taiwan in the near future probably aren't as high as what a lot of people fear. In Mainland China's case, it believes that it can afford to wait because it is becoming stronger and stronger, meaning that its position is becoming better and better. In Taiwan's case, it is restrained by the aforementioned consideration. Furthermore, while the pan-Green coalition has more support than the pan-Blue coalition, the latter has considerable support in its own right, which is relevant in this context because it prefers maintaining the status quo. On top of this, both polities know that whoever moves first would have a harder time winning if not international support than at least international indifference. Something that matters to both of them. Still, the possibility of a military conflict over this unresolved issue remains, meaning that it is something that interested individuals should keep in mind.

This is particularly true because Taiwan is a major area of concern in U.S.-China tensions, which are likely to continue into the foreseeable future. For Taiwan Semiconductor, this is quite bad because it could fuel the emergence of future threats to its dominant position. The importance of semiconductors means that China was already concerned about its companies being so reliant on a Taiwanese company. However, that intensified when the Trump administration forced Taiwan Semiconductor to stop making semiconductors for Huawei. Unsurprisingly, this means that China has increased its support for its own semiconductor manufacturers. Those are generations behind Taiwan Semiconductor for the time being, but it would be overconfidence to say that they could never catch up. Meanwhile, the importance of semiconductors means that the United States is also concerned about its companies being so reliant on a company based in Taiwan. This has resulted in efforts to convince Taiwan Semiconductor to move some of its most important semiconductor manufacturing to the United States. However, it isn't unimaginable for the United States to also increase support for its own semiconductor manufacturers. Certainly, it would have an easier time doing so than China, seeing as how its semiconductor manufacturers are already some of Taiwan Semiconductor's most formidable rivals.

Should You Make a Long-Term Investment in Taiwan Semiconductor?

Summed up, Taiwan Semiconductor is in a very strong position. It is possible that this will change in the times to come, but there are reasons to believe that it will continue to do well, not least because it has been doing very well for quite some time now. Interested individuals should remember that they are always the ones who understand their investing priorities the best, meaning that they will need to do their own research to figure out whether they are willing to jump in or not.

Allen Lee

Written by Allen Lee

Allen Lee is a Toronto-based freelance writer who studied business in school but has since turned to other pursuits. He spends more time than is perhaps wise with his eyes fixed on a screen either reading history books, keeping up with international news, or playing the latest releases on the Steam platform, which serve as the subject matter for much of his writing output. Currently, Lee is practicing the smidgen of Chinese that he picked up while visiting the Chinese mainland in hopes of someday being able to read certain historical texts in their original language.

Read more posts by Allen Lee

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