TSMC Investors Narrow Valuation Disparity with Wall Street
Taiwan Semiconductor Manufacturing Co.'s US-Listed Shares Plummet to Two-Year Low
Local investors are driving the premium on Taiwan Semiconductor Manufacturing Co.'s US-listed shares to a two-year low, as they pile into the chipmaker's stock in Taipei on bets the AI boom has further to run.
According to data compiled by Bloomberg, TSMC's American depositary receipts (ADRs) traded at an average 13.7% premium to its Taipei-listed shares in May, down from 26% in December, marking the fifth straight month of decline. This reverses a trend that saw the chipmaker trade at a significantly higher valuation among international investors during the early stages of a global AI rally.
The shift has been driven largely by a dramatic run-up in Taiwan-listed shares, which have soared more than 50% this year and outpaced the ADRs' less than 40% advance. This trend is particularly notable when compared to the ADRs and Taiwan-listed shares, as shown in the table below.
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| Month | ADRs | Taiwan-Listed Shares |
|---|---|---|
| May | 13.7% premium | 50% increase |
| December | 26% premium | Less than 40% increase |
| January | 22% premium | 30% increase |
| February | 20% premium | 35% increase |
| March | 18% premium | 40% increase |
Regulatory changes allowing local equity funds to increase exposure to domestic stocks have added fuel to the rally, while individual investors have poured into AI-related names, spurring a retail frenzy. The shift in market sentiment has led to a significant decrease in the premium of TSMC's ADRs compared to its Taipei-listed equities.
The chipmaker's ADRs have typically traded at a premium to its Taipei-listed equities, due to a mix of easier access for foreign investors and inclusion in popular indexes. They are also fungible, unlike the Taiwan shares, which need special regulatory approval to be converted into the US equivalent. The erosion of the ADR premium suggests local investors play a bigger role in driving TSMC's valuation after years of foreign demand being the dominant force. The stock's surge has been so powerful that it pushed Taiwan into the ranks of the world's five largest stock markets.
Investor Takeaway
Investors should consider the potential for further growth in the AI sector, particularly in Taiwan.
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