Taiwan Semiconductor Manufacturing Company (TSM), otherwise known as TSMC, has surged over 20% since my last recommendation three months ago, and has breezed past its former price target of $220. As the world’s largest chip-making foundry and leading supplier to NVDA, TSM is not just another chipmaker—it is the bedrock of the global semiconductor industry and the silent force powering the AI revolution. I believe TSM is a prudent Buy, given its dominance in cutting-edge nodes, robust financial performance, strong revenue momentum, resilient margins, and attractive valuation.
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TSMC Remains the Global Leader in Chipmaking
While the market’s attention is focused on AI stocks, it is crucial to recognize the source driving their exceptional growth. TSMC remains the world’s largest producer and supplier of AI chips, with industry leaders such as Nvidia (NVDA), Advanced Micro Devices (AMD), Apple (AAPL), and Qualcomm (QCOM) among its premier clients.
The company’s growth prospects are firmly supported by the rapid expansion of the AI industry. According to Statista, the global AI market is projected to breach the US$1 trillion mark by 2031, reflecting a compound annual growth rate (CAGR) of 26.65%.
TSMC remains the backbone of the global semiconductor supply chain, producing nearly two-thirds of the world’s chips and an even larger share of AI-optimized semiconductors. In the foundry segment alone, TSMC commands an extraordinary 70% global market share, far surpassing its closest rivals—Samsung Electronics (SSNLF) and Intel (INTC), according to Statista. Its unparalleled scale, entrenched client relationships, and technological superiority create formidable barriers to entry.
Adding to the bullish case, Nvidia CEO Jensen Huang recently described TSMC as a “very smart buy.” When such conviction comes from one of AI’s foremost leaders, it signals a long runway for growth that the market may not yet be fully pricing in. This optimism is also reflected in hedge fund sentiment, with hedge fund managers adding 2.9 million shares in the last quarter alone.
TSMC’s Technological Prowess Helps Innovation
TSMC’s competitive edge is anchored in its leadership in process technology. Having already achieved dominance at the 3nm and 5nm nodes, the company is now advancing toward 2nm technology, a development expected to further consolidate its market leadership.
Its chips and processors are indispensable across industries, powering everything from mobile devices and electric vehicles to AI-driven data centers. This ubiquity underscores TSMC’s critical role as a linchpin of global technology, validating its undeniable growth trajectory.
While many industries grapple with policy uncertainty under the Trump administration’s proposed 100% chip tariffs, TSMC has benefited from favorable dynamics. Thanks to its expansion of U.S. manufacturing operations, the company has secured relief from these tariffs—providing much-needed reassurance to investors.
Strong Financial Performance and Expanded Margins
In July, TSMC delivered another stellar quarter, with revenue surging 44% year-over-year to $30 billion and EPS climbing 60.7% year-over-year. Growth was primarily fueled by high-performance computing (HPC), which contributed 60% of sales, while smartphone chips accounted for 27%.
The financial strength extends beyond top-line performance. Gross margin held steady at approximately 59%, while operating margin expanded to nearly 50%, reflecting a year-over-year improvement of roughly 700 basis points. This margin expansion highlights both pricing power and operational efficiency, reinforcing TSMC’s structural advantages over peers such as Intel and Samsung, which continue to face execution challenges at advanced nodes.
Looking ahead, TSMC has raised its FY2025 revenue outlook to 30% growth (up from a prior guidance of mid-20% growth). This aligns with broader AI industry projections, further confirming the durability of its growth trajectory.
Looking forward, TSM is set to report its Q3 2025 earnings on October 16. The company is projected to report earnings per share (EPS) of $2.60, representing a 33.3% year-over-year increase. Additionally, Q3 revenues are projected to increase by 38% year-over-year, ranging between $31.8 billion and $33 billion, driven by high demand for its advanced 3-nanometer (nm) and 5-nm processes.
Proven Long-Term Growth Trajectory
TSMC’s performance over the past seven years highlights its impressive trajectory. Revenues more than tripled from $947.9 billion in FY2016 to $2.89 trillion in FY2024, reflecting a compound annual growth rate (CAGR) of 14.95%. What’s even more applaudable is that earnings have grown 3.5x from $331 billion to $1.17 trillion over the same period, achieving a CAGR of 17.1%, fuelled by consistently strong profit margins.
These results reaffirm confidence in TSMC’s robust fundamentals and sustained growth, particularly as the adoption of AI accelerates. With rising demand for AI chips, processors, and supporting infrastructure worldwide, TSMC is positioned to deliver incremental gains in both revenue and profitability. It is only a matter of time before these investments translate into even greater shareholder value.
TSM’s Valuation is Attractive Despite Its Growth Trajectory
Importantly, TSM trades at an attractive valuation compared to its peers. In terms of its valuation, TSM looks relatively cheap. Currently, it’s trading at an attractive forward P/E ratio of 24x, compared to much higher multiples of its peer group. Semiconductor company Advanced Micro Devices is trading at a higher forward P/E multiple (42x), while the AI prodigy Nvidia is trading at a forward P/E of 39x. U.S.-based chipmaker Intel is trading at a much higher valuation of more than 50x.
Given TSMC’s indispensable role in the AI ecosystem, unmatched process leadership, and proven earnings growth, the stock appears undervalued relative to both its strategic importance and long-term potential.
Is TSMC a Buy, Sell, or Hold?
On Wall Street, TSM stock carries a Strong Buy consensus rating based on six Buys, one Hold, and zero Sell ratings over the past three months. TSM’s average stock price target of $273.43 implies approximately 16.25% upside potential over the next twelve months.
TSMC Remains a Strategic Long-Term AI Investment
While the spotlight often falls on names like Nvidia and AMD, TSMC remains the indispensable enabler behind their AI explosive growth story. As AI adoption accelerates worldwide, TSMC’s technological edge, scale, and cost efficiency position it as one of the most compelling long-term investment opportunities in the semiconductor industry.
Given its robust revenue momentum, resilient margin profile, and compelling valuations, I am a confident Buyer of TSMC stock at current levels.