Apple’s latest smartphones are drawing significant attention, setting the stage for a potential blockbuster sales cycle. As excitement builds for the iPhone 16 lineup, there’s another company riding Apple’s coattails that could provide investors with a golden opportunity: Taiwan Semiconductor Manufacturing (TSMC). Let’s dive into why this stock could be the smart play before Apple’s iPhone 16 becomes a runaway hit.
Apple’s iPhone 16: The Catalyst for a Major Upgrade Cycle?
Apple’s (AAPL) iPhone 16 series appears to be off to a strong start, despite early reports suggesting that demand might be softer compared to last year. Counterpoint Research indicates that the iPhone 16 has seen a sales increase of between 15% and 20% in India on launch day alone. This is a huge deal considering Apple’s 35% sales growth in the country in fiscal 2024, hinting that this momentum will likely continue.
T-Mobile CEO Mike Sievert also noted a bump in iPhone sales compared to last year. Although there’s a delayed rollout of Apple’s AI-powered Apple Intelligence suite, which may stretch out the buying cycle, Apple’s large user base of older devices—some four years old or more—could drive a serious wave of upgrades. According to Dan Ives of Wedbush Securities, a whopping 300 million iPhones out of the 1.5 billion installed base haven’t been upgraded in years. With the AI features built into the iPhone 16 models, Apple has set itself up for a big surge in sales.
TSMC: The Silent Power Behind Apple’s Success
While Apple is the star of the show, Taiwan Semiconductor Manufacturing (TSMC) is the engine making the magic happen. TSMC is responsible for producing the A18 and A18 Pro chips that power Apple’s new iPhone 16 models, which are built using its advanced 3-nanometer process. These chips are a game-changer, offering 15% better performance and 20% less power consumption for the Pro models, and even more for the standard iPhone 16 series.
Why does this matter? The improved efficiency and processing power of these chips makes Apple’s new AI features run smoother, attracting consumers looking for faster, more capable smartphones. And this isn’t just good news for Apple—it’s a massive win for TSMC. Apple has ramped up production, and TSMC’s revenue has skyrocketed, with year-over-year growth rates of 33% in June, 45% in July, and another 33% in August. TSMC isn’t just benefitting from Apple’s growth; it’s thriving because of it.
Why TSMC Could Be a Stock to Buy Right Now
With Apple accounting for a quarter of TSMC’s revenue in 2023, and predictions that iPhone 16 production could hit 90 million units in 2024, TSMC’s growth prospects look bright. Analysts like Dan Ives are optimistic that Apple’s next generation of iPhones, along with the pent-up demand for upgrades, could fuel TSMC’s revenue for years to come. Add to that the company’s tight relationship with Nvidia, which also relies on TSMC for its AI chips, and you’ve got a recipe for long-term success. Even more intriguing, Apple is already locking in TSMC’s capacity for its 2-nanometer chips set to roll out in 2025. This means Apple is doubling down on its future iPhone production using TSMC’s cutting-edge technology. Considering TSMC did something similar in 2023 with its 3nm process, this is a strong indication that TSMC will continue to grow alongside Apple’s innovations.
The Numbers Don’t Lie: Why TSMC is a Bargain Compared to Apple
Looking at the numbers, TSMC is trading at 31 times trailing earnings and 21 times forward earnings, making it more affordable than Apple, which is trading at 34 times trailing earnings and 30 times forward earnings. For investors, this makes TSMC an appealing option as it offers exposure not just to Apple’s booming iPhone sales but also to the broader AI chip market, driven by companies like Nvidia. In short, TSMC gives investors a diversified way to capitalize on the tech and AI revolutions—at a cheaper price. With the company already seeing a 75% stock gain in 2024, there’s still room for growth, especially as the iPhone 16 continues to roll out globally.
As Apple’s iPhone 16 captures global attention and promises a major upgrade cycle, TSMC stands poised to reap the benefits. Its close relationship with Apple, along with its growing presence in the AI chip market, makes it a stock to watch closely. With both companies seeing strong momentum and TSMC trading at a more attractive valuation, this could be the perfect time to consider adding TSMC to your portfolio before it takes off even further. So while Apple may grab the headlines, smart investors will want to keep a close eye on TSMC—because sometimes the biggest opportunities lie behind the scenes.
