After a strong start to the year, shares of Taiwan Semiconductor Manufacturing (NYSE: TSM), or TSMC for short, have cooled off recently following some geopolitical worries. The stock is still up over 50% year to date, but down about 17% from its recent highs. The question for investors is whether TSMC is a buy following the pullback in the stock.

TSMC is a semiconductor contract manufacturer, which means that it owns a number of foundries, or semiconductor manufacturing facilities, where it produces chips for semiconductor companies. Many companies that design semiconductors use what it is commonly called a fabless model, where they contract out the production of their chips to a third party such as TSMC.

Building out foundries is a capital-intensive endeavor, and utilization levels must be high for the plants to run profitability. As such, for many semiconductor companies it is easier to outsource production and not have to spend the cash and keep up with production technology advancements, instead focusing on their core competencies of designing chips.

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Source Fool.com