Taiwan Semiconductor (TSM  ) is the leading semiconductor manufacturer in the world, recently eclipsing Intel (INTC  ) as the company with the most leading-edge technology. It contracts with various companies like Samsung, AMD (AMD  ), and Nvidia (NVDA  ) who design chips, while Taiwan Semiconductor handles the actual manufacturing.

Thus, its earnings are highly anticipated as it gives insight into the overall health and prospects of the semiconductor industry. And, of course, this is even more heightened this year due to a shortage of semiconductors which is having adverse effects across a wide variety of industries.

Inside the Numbers

In Q1, Taiwan Semiconductor reported $0.96 per share in earnings which was slightly above analysts' expectations of $0.95 per share. This was a 28% increase from the same quarter last year. Revenue came in at $12.9 billion which topped analysts' expectations of $12.5 billion and was a 25% increase from last year.

For its upcoming quarter, the company expects revenue between $12.9 billion and $13.2 billion. This range was slightly below analysts' expectations of $13.2 billion. To compare, it generated $10.4 billion last year, so the company seems poised to show revenue acceleration on a quarterly basis. Equally important, management indicated that they expect the semiconductor supply crunch to continue till the middle of 2022.

5-nanometer semiconductors accounted for 14% of total revenue at TSMC, while 7-nanometer chips accounted for 35%. A major source of revenue growth was high-performance computing chips, while smartphone chip sales came in below expectations.

Stock Price Outlook

Taiwan Semiconductor is down about 6% since its earnings report and about 16% since mid-February when many tech stocks peaked. However, the stock had been on an incredible tear leading up to this with a nearly 200% gain from the stock market bottom in March 2020.

Recently, the company also announced a $50 billion investment in new production. The simple fact is that new technologies like AI, machine learning, virtual reality, cloud computing, autonomous driving, etc., all require a massive amount of chips. Further, nearly every device and gadget is now connected which also means more chips to process and transmit data. Additionally, every year it's estimated that another 50 to 70 million people join the global middle class, while this certainly means more energy and food consumption, it also means that more gadgets will be bought.

Given that Taiwan Semiconductor is the leading manufacturer and supplies chips to companies like Apple (AAPL  ) and Nvidia, this dip is likely to be a good entry point. At one point, semiconductors were considered to be a cyclical market, but it's been having like a sector in a secular uptrend. Further, despite its recent strength, the company has a forward PE of 25 which is in line with the market average despite a much faster growth rate and larger margins.