Billionaire Chase Coleman of Tiger Global Management has built a large portfolio focused mostly on major tech stocks.
One of the smaller positions Coleman holds is a roughly $705 million stake in Taiwan Semiconductor Manufacturing (NYSE:TSM), which he expanded by over 16% in Q1.
Why did Chase Coleman buy TSM, and is the stock still worth looking at in today’s market?
Coleman’s Investing Strategy
Chase Coleman’s investment strategy may best be summarized as a blend of value and growth investing.
His preferences lean toward high-tech companies that have the potential to grow far faster than the broader market through the use of disruptive technologies.
Like all successful investors, though, Coleman also takes advantage of market inefficiencies to buy companies when he believes them to be intrinsically undervalued.
TSM’s Growth Trajectory and Powerful Moat
Chase Coleman has been making successful bets on disruptive tech companies for years, and TSM seems to fall deeply into this category. By far the standout feature of TSM is its incredible moat in the semiconductor market.
The company’s market share in the semiconductor foundry space is approximately 67%, making it by far the biggest player in a market where demand currently outweighs supply. TSM also acts as the foundry for some of the world’s biggest tech companies, most notably NVIDIA and Apple.
Needless to say, TSM has done extraordinarily well due to the demand for AI chips in recent years. It has experienced five consecutive quarters of revenue growth, and it’s likely that demand for its chips won’t decline anytime soon.
Indeed, the global semiconductor market is expected to grow at more than double the rate of global GDP through 2030. Barring any sudden disruption that breaks into TSM’s foundry moat, the company appears to be uniquely positioned to benefit from this projected growth.
These trends have already resulted in some fairly incredible earnings growth at TSM in recent years. Between 2020 and 2024 alone, the company’s full-year earnings per share rose from $3.51 to $6.81. Even more importantly, this strong growth is expected to continue well into the future as demand for chips continues apace. In the coming 3-5 years, earnings per share at TSM are projected to keep rising at an annualized rate of over 20%.
TSM is also expanding its operations to meet the needs of global supply chains and protect itself from rising trade and geopolitical tensions. The company is already nearing full capacity at its plant in Phoenix and is looking to build another US plant in Washington.
This approach of expanding in the US is likely to be extremely beneficial, especially with the deep uncertainties about supply chains for electronic components introduced by America’s ongoing attempt to place higher tariffs on imports.
Where Does TSM Stand on Value?
TSM also seems to satisfy Coleman’s criteria on the value side of the equation. It currently trades at 24.9x earnings and 10.4x sales.
Although these multiples don’t exactly scream undervaluation, it’s important to take into account the rapid growth and moat that TSM offers.
Management is also reporting extremely strong profitability, having achieved a net margin of 41.7% and a return on invested capital of 26.9% over the last 12 reported months.
For these reasons, TSM may still be somewhat undervalued today. Analysts forecast an average price of $223.69 over the next 12 months, a target that would see TSM shares increase more than 15%.
While not quite as aggressive as the 29% gain the stock has delivered over the trailing 12-month period, this kind of return would be more than enough to make the stock attractive to most investors.
Putting it Together: Why Chase Coleman Bought TSM
In the end, Chase Coleman’s decision to buy TSM seems to come down to a combination of its dominant pick-and-shovel position on AI chips, its potential for outstanding growth resulting from that position and its seemingly undervalued pricing relative to that growth potential.
All three of these characteristics put TSM sharply in line with Coleman’s general approach to investing. It’s worth noting that Coleman also bought NVIDIA, Amazon and Microsoft around the same time as his most recent TSM purchase, suggesting that it may have been part of a broader strategy to bolster his portfolio’s AI exposure.
Is TSM Still a Buy?
The same factors that seem to have drawn Coleman to TSM largely hold true for investors looking at the stock right now. It remains far and away the largest pure-play semiconductor foundry investment, and the demand for chips seems to be heading nowhere but up. As such, TSM could still be in for many years of strong and consistent earnings growth.
TSM’s valuation isn’t exactly low, but it does have the advantage of being much lower than most other companies with strong exposure to the AI market.
Even discounting this fact, TSM is obviously a very strong business that is both strongly profitable and has a defensible moat. So, even if the stock isn’t actively undervalued, TSM could represent a good opportunity for investors to buy an excellent business at a fair price.
Finally, it’s important to take TSM’s dividend into account. The stock yields about 1.3%, roughly in line with the average of the S&P 500. However, TSM’s payout ratio is still under 30%, meaning that management has plenty of room left for raising the dividend. This is especially true if TSM delivers anything near the kind of earnings growth it’s expected to over the coming several years.
Although today’s investors won’t get quite the deal that Chase Coleman did by buying TSM shares earlier, there’s still plenty to like about the company and its position at the heart of a high-growth market. TSM still looks like it could be a good buy today, especially for investors looking for buy-and-hold opportunities with a decently balanced combination of growth, value and the ability to produce a respectable level of dividend income.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
