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Why Taiwan Semiconductor Manufacturing Co.'s Stock Rose 14.3% in January

Anders Bylund, The Motley Fool

What happened

Shares of Taiwan Semiconductor Manufacturing (NYSE: TSM), or TSMC for short, gained 14.3% in January, according to data from S&P Global Market Intelligence. The contract manufacturer of chips for some of the largest semiconductor companies on the planet enjoyed a couple of rosy analyst notes, and that was enough to lift the stock sky-high.

Semiconductor manufacturing machines doing their thing to a silicon wafer.

Image source: Getty Images.

So what

On Jan. 16, analysts from global megabank HSBC raised its rating of TSMC from a "hold" to a "buy," citing expansion of the company's profit margin alongside market share gains, all based on advanced 7-nanometer manufacturing technologies. A week later, Goldman Sachs followed suit for much the same reasons, noting that TSMC should trade at higher price-to-earnings ratios because of rapid earnings growth.

Share prices surged on both of these cheerful analyst notes and have held steady since, in relation to the wider stock market.

Now what

TSMC is a giant in its chosen industry, making it a pretty reliable weathervane for the health of the semiconductor sector at large. Granted, the company isn't exactly loving the wave of consolidation mergers that's sweeping through the industry right now, potentially reducing the number of solid clients, but TSMC's sales and profits are surging anyhow.

This is a quality company, and I can only nod along when analysts publish these optimistic reports on the stock. TSMC crushed the market in 2017 and is now off to a good start in 2018 as well.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.