TSMC: Strong AI-Driven Growth Offset by Emerging Margin Pressures and Full Valuation, Justifying Hold Rating

Krish Sankar, an analyst from TD Cowen, maintained the Hold rating on TSMC. The associated price target was raised to $370.00.

Krish Sankar has given his Hold rating due to a combination of factors that balance TSMC’s impressive growth profile with emerging profitability headwinds and elevated expectations. He acknowledges that TSMC continues to deliver better‑than‑expected results and has raised its long‑term revenue growth outlook, underpinned by robust, tangible AI and cloud demand and a sizable, disciplined capex plan aimed at expanding leading‑edge capacity. These dynamics support a strong multi‑year growth runway, including substantial contributions from advanced nodes and advanced packaging, and position TSMC as a key beneficiary of AI accelerators and high‑performance computing. However, much of this optimism is already reflected in the stock following successive upside quarters, limiting near‑term rerating potential.

At the same time, Sankar highlights that margin sustainability is becoming more challenging despite near‑term gross margin guidance remaining very healthy. The forthcoming ramp of the N2 node and the acceleration of overseas fabs, particularly in higher‑cost geographies such as Arizona, are expected to weigh on gross margins in the second half of 2026, creating a phase of earnings dilution even as revenues grow. Seasonal softness in parts of the business, such as smartphones, and the mix shift toward more capital‑intensive leading‑edge and packaging projects add another layer of execution risk. Taken together, strong structural demand and disciplined investment are offset by rising cost pressure and already demanding expectations, leading him to conclude that the risk‑reward profile is balanced at current levels and to maintain a Hold rating.

Sankar covers the Technology sector, focusing on stocks such as Micron, Apple, and Applied Materials. According to TipRanks, Sankar has an average return of 36.3% and a 65.78% success rate on recommended stocks.