Taiwan Semiconductor Manufacturing Company Limited’s (TSM) stock still looks attractive after its massive rally. That may sound hard to debate after such a huge run, but recent data has made it clear that the business is still benefiting from much larger forces than those of a typical semiconductor cycle.
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Demand for advanced chips remains extremely strong, and margins of this contract chipmaker continue to reflect enormous operating leverage. At the same time, management’s outlook suggests the artificial intelligence (AI) buildout still has a long way to run. That makes the valuation look reasonable even with the stock up so sharply from last year’s levels. That is why I remain bullish on TSM today.
The Monolithic Surge and the AI Cauldron
TSM’s non-stop rally was further fueled by the company’s exciting Q1 results. TSM blew estimates, posting revenue of $35.9 billion, up 40.6% year-over-year. What drove this incredible acceleration is an insatiable, almost desperate global demand for high-performance computing infrastructure. The world’s tech giants are building out massive data centers as fast as they can, and every single one of them needs the high-end silicon that only TSM can reliably forge.
It’s also worth noting that advanced technologies, chips manufactured at 7-nanometer nodes and below, now comprise 74% of total wafer revenue. The transition to 3-nanometer technology alone, in fact, has been remarkably swift. It is now contributing 25% of wafer sales on its own.
So we are clearly seeing a shift in customer demand, with high-performance computing rising 20% sequentially to account for 61% of the overall business. Rising revenues, driven by higher volumes, in turn led to better unit economics, driving an operating margin expansion to 58.1%. The key here is that TSM has immense operating leverage. It can essentially become a cash-printing machine when running at absolute maximum capacity.
Why the Silicon Supercycle Is Far from Over
That massive rise in demand for TSM’s high-end silicon raises the question of whether we are standing at the cyclical peak of this chip cycle. Well, I believe that the underlying market conditions suggest we are only in the early innings. TSM recently raised its full-year revenue growth guidance to above 30%, which signals extreme confidence in order visibility.
Look at the capex numbers too, where the company is now targeting the absolute high end of its capex range, planning to spend between $52 billion and $56 billion this year to build out next-generation capacity. There is no way TSM would spend capital of that magnitude unless its customers are locked into long-term supply commitments.
The immediate catalysts are hiding in plain sight as well. We are on the cusp of seeing the next-gen 2-nanometer nodes enter production, and major customers like Apple (AAPL) are already queuing up to book entire production runs for their upcoming premium chipsets.
Further, Nvidia’s (NVDA) upcoming Blackwell architecture and future product rollouts are keeping the pressure firmly on high-performance computing demand. Yes, overseas expansions and early-stage manufacturing ramps will naturally cause minor, temporary margin-dilutive effects. However, the sheer velocity of advanced wafer orders ensures that revenue and earnings growth have a clear, highly visible runway for the next several years.
The Valuation of a True Monopoly
Now, it seems counterintuitive to call a stock cheap after it has experienced a triple-digit run, but I would argue the valuation math is rather comforting. Right now, the broader market consensus projects full-year earnings per share of $15.61, implying a forward P/E of 25.9x. For a business that effectively holds a monopoly over the most valuable physical commodity on earth, that multiple is anything but rich.
The bears could argue that this multiple is above the company’s historical 15x–20x range. Still, there are two distinct reasons why this valuation remains attractive, in my view. First, remember that TSM boasts an unfathomable competitive moat. It is an irreplaceable, mission-critical foundation of the modern global economy, and building a rival foundry ecosystem requires hundreds of billions of dollars and decades of specialized engineering expertise.
Second, the current consensus numbers appear distinctly conservative given the sheer velocity of demand we are seeing on the ground. As AI applications expand into every corner of software, actual earnings will likely outpace Wall Street’s estimates, making the stock look even cheaper in hindsight. Given where the global infrastructure is heading, I believe the risk-reward skew remains heavily tilted to the upside.
Is TSM Stock a Buy, Sell, or Hold?
Despite its prolonged rally, TSM stock maintains a Strong Buy consensus rating on Wall Street, based on five Buy ratings and one Hold rating. Notably, no analyst rates the stock a Sell. Also, TSM’s average price target of $465 implies about 17% upside over the next 12 months.
Conclusion
TSM is the gatekeeper of our digital future. This makes it really tough to bet against them. It’s not worth it. Now, while a stock that doubled over the past year can make one a little nervous, the stellar demand, margin expansion, and excellent outlook, against a very reasonable forward multiple, continue to form a compelling investment case. I am staying firmly long, because the silicon gold rush is still accelerating.