TSMC (TSM) may have posted strong Q2 results, pushing the stock to new all-time highs, but from a sentiment and valuation standpoint, this doesn’t strike me as a prime entry point. While TSMC remains one of the most uniquely positioned companies in the tech industry, boasting a near-unmatched competitive moat and reliable cash flows, I believe its upside over the next 12 months will likely be modest.
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With the stock up more than 7% in just the past few days, I view the current price action as overly bullish and disconnected from long-term fundamentals, driven largely by short-term enthusiasm around recent results. Once this initial optimism fades, I expect profit-taking from speculative traders to pull TSMC back to more reasonable levels. For now, I’m holding a Neutral stance on the stock.
TSMC’s Robust Q2 Results Sustain Sentiment for Now
In Q2 2025, TSMC delivered 38.6% year-over-year revenue growth, 60.7% year-over-year net income growth, and operating expenditures of just 9.1% of revenue, down from 10.5% year-over-year. This marks strong internal efficiency and continued success with customers amid the current high-demand cycle.
With the High-Performance Computing segment (which includes AI) accounting for 60% of total revenues, and AI-related revenue expected by management to double in Fiscal 2025, followed by moderate year-over-year growth of about 50% in Fiscal 2026, there are clear industry tailwinds supporting shareholder returns. However, such stark moderation in AI-related growth, while still impressive, means that the valuation multiples will likely contract soon.
Consider that the company’s total revenue is estimated to moderate from a consensus of 40% year-over-year growth in Fiscal 2025 to just 15% in Fiscal 2026. Therefore, market sentiment can’t rationally stay at the same level indefinitely. There are fundamental constraints that will begin to weigh on the current market enthusiasm.
This negative sentiment impact also stems from moderating earnings growth. The consensus has TSMC’s normalized earnings per share year-over-year growth rate at about 35% for Fiscal 2025, and just 15% for Fiscal 2026.
That said, TSMC stock is trading with much, much higher growth than the sector. The company’s forward diluted earnings per share growth rate is currently 28%, compared to 10.5% for the sector. At the same time, the forward P/E ratio is essentially equal to the sector.
That means, fundamentally speaking, TSMC is undervalued on a pure earnings basis (though a price-to-sales analysis reveals a more nuanced moderate undervaluation). The question is whether the market will re-rate the business’s valuation accordingly, or if historical sentiment has set a precedent that is difficult to alter. Usually, I invest based on the premise of the latter.
Technicals Show Overvaluation While Macro Factors Indicate High-Growth
Currently, TSMC stock is trading well above the 50-week moving average in price, and the 14-week Relative Strength Index (RSI) is just over 70, indicating an overbought stock. In other words, this is not the best moment to start buying TSMC, even after such robust earnings. Despite the fundamental valuation multiples indicating reasonable or moderate undervaluation, the reality is that the market prices this stock according to more complex criteria, some of which may be influenced by geopolitical factors due to the company’s headquarters in Taiwan.
It’s essential to view TSMC stock within the broader market landscape. The tech sector has roared back with renewed bullishness following some disruption resulting from Trump’s tariffs earlier this year. However, while enthusiasm around AI and high-performance computing remains driving momentum, that opportunity isn’t limitless. The pressing question among advanced semiconductor analysts now is whether there will be a demand gap between the current AI boom and the eventual large-scale rise of robotics.
After closely analyzing the data, I see potential for some near-term volatility as robotics infrastructure ramps up to replace or supplement the growth we’ve recently seen from data centers and other intelligent tech. That said, there’s also a strong chance that AI and robotics will evolve in tandem, creating a long-term growth engine that could continue to power TSMC’s upside for years to come.
Currently, the global data center market is valued at approximately $250 billion, while the robotics market is estimated at around $78 billion. Based on my ongoing research, I estimate that data center spending could scale rapidly to $1 trillion by 2030, representing a compound annual growth rate (CAGR) of approximately 30%. Meanwhile, current projections suggest the robotics market could grow to $165 billion by 2029, reflecting a solid 20% CAGR.
These growth trajectories offer an exceptional long-term return horizon. If TSMC adapts accordingly—pivoting more aggressively toward AI and robotics while gradually moving away from slower-growth areas like smartphones, digital consumer electronics, and automotive—the company could unlock even greater long-term upside. Such a strategic shift might not only enhance returns but also reduce long-term volatility, creating a more resilient growth profile than what’s currently priced into the stock.
Is TSMC a Buy, Sell, or Hold?
On Wall Street, TSMC stock has a consensus Strong Buy rating, based on six Buys, one Hold, and zero Sells. The average TSM stock price target of $263.29 indicates an 8% upside potential over the next 12 months.
This suggests that the valuation concerns I’ve highlighted are already being factored in by Wall Street, making it unlikely that sentiment around TSMC stock will suddenly surge into high-alpha territory. Unless there’s a significant internal shift at TSMC—a scenario that seems improbable given the company’s deep-rooted infrastructure and long-term commitments to established industries—any major re-rating appears unlikely in the near term.
TSMC is a Top-Tier Firm That’s Fully Priced
TSMC is one of the most admired companies in the tech world—a business any investor would love to invest in on the ground floor. It’s the product of decades of relentless focus and strategic execution, securing its place as the undisputed leader in a highly specialized and profitable sector.
That said, despite strong Q2 results, the stock currently looks overextended to me. Macro conditions need to be closely monitored, as market sentiment appears to be pricing in substantial future growth that hasn’t yet been reflected in consensus forecasts. For now, I’m maintaining a Neutral stance.