TSMC Overtakes Chinese Tech Giants to Become Asia’s Most Valuable Stock

Tencent finished Tuesday with a market value of about $569 billion. TSMC has consistently been worth more than Tencent since Dec. 15, FactSet data shows. Before that, it overtook Tencent several times since early August, only to cede the top spot again.

TSMC chips can be found inside billions of products, including iPhones, computers and cars. It makes more than 90% of the world’s most sophisticated semiconductors, according to Capital Economics, based on data published by the Semiconductor Industry Association. The chips house transistors less than one-thousandth the width of a human hair. 

Hsinchu, Taiwan-based TSMC is the world’s largest contract chip maker and one of the most important companies for global investors in developing markets. It is the single largest component in MSCI Inc. ’s influential emerging markets index, with a near-7% weight at the end of December, according to MSCI.

The company this month said it has set 2022’s capital-expenditure budget at $40 billion to $44 billion, a record high, compared with last year’s $30 billion, as demand continues to surge amid a global chip crunch.

TSMC Chief Executive C.C. Wei this month said he expects this year’s revenue to beat last year’s record 1.59 trillion New Taiwan dollars, equivalent to about $57 billion, by at least 25%. 

Analysts and investors say TSMC’s market value is justified by its technological edge over competitors including Intel Corp. and Samsung Electronics Co., as well as the ubiquity of its chips. TSMC also makes chips under contract for some Intel competitors, including Advanced Micro Devices Inc. and Nvidia Corp.

“The technology gap between TSMC and its competitors is widening. That’s why we like the stock,” said Thomas Wong, founder and chief investment officer of Optimas Capital Ltd. Optimas, which holds TSMC shares, is a hedge-fund manager that specializes in long-short equity investing, buying some shares while betting others will decline.

TSMC has benefited from trade tensions between Washington and Beijing that have made it harder for chip makers in China to catch up in technology, Mr. Wong added. 

TSMC shares have gained about 4% this year through Tuesday’s close, though they have pared gains since peaking on Jan. 17, as global markets have pulled back broadly. TSMC trades in Taipei and has American depositary receipts listed on the New York Stock Exchange.

For the near term, investors are likely focusing on broader issues affecting the market, such as inflation and expectations that the Federal Reserve will raise interest rates more quickly, said Jeff Pu, an analyst covering Greater China technology at Haitong International Securities Group Ltd.

TSMC isn’t immune to the cycles that characterize the semiconductor industry. Morgan Stanley recently raised its price target for TSMC by 4.9% to NT$648, equivalent to $23.40 and slightly above Tuesday’s closing price of NT$641.

The U.S. bank said the company risks losing value on its inventory if demand slows. In January 2019, TSMC lowered its guidance, citing a weakening macroeconomic environment, seasonality in the mobile-phone market and a large inventory.

Stocks in Chinese internet companies such as Tencent and Alibaba Group Holding Ltd. took a beating last year as Beijing reined in the sector with a barrage of new rules and a series of fines. Tencent, whose value rests partly on its huge portfolio of investments in other tech companies, has trimmed its stakes in two big holdings, JD.com Inc. and Sea Ltd., and analysts say it could be under pressure to make more divestments.

Some investors are bullish on both Tencent and TSMC. Richard Clode, a portfolio manager at Janus Henderson Investors, said a fund he manages reinvested in Tencent shares after selling them in early 2021 due to regulatory and valuation concerns, and he thinks regulatory challenges will ease at some point. At the same time, TSMC is among the fund’s top 10 holdings, and Mr. Clode lauds the company’s capital-expenditure plan as a signal for growth.

—Serena Ng contributed to this article.

Write to Dave Sebastian at [email protected]