NYSE:TSM Stock Analysis – Is Taiwan Semiconductor Still a Buy After Its 35% Revenue Growth?
TSMC (NYSE:TSM) Dominates Advanced Chip Manufacturing – But Is It Still Undervalued?
Taiwan Semiconductor Manufacturing Company (NYSE:TSM) continues to prove its status as the world’s most critical semiconductor company, driving the future of AI, high-performance computing (HPC), and 3nm technology. With its January 2025 revenue up 35.9% year-over-year, and advanced node demand surging, investors are questioning: Is TSM stock still a buy at $187, or has it run too far, too fast?
TSMC’s Market Position – The Unchallenged AI Chip Leader
TSMC is the undisputed global leader in semiconductor foundries, manufacturing chips for Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL), Advanced Micro Devices (NASDAQ:AMD), and Broadcom (NASDAQ:AVGO). Over 67% of TSMC’s revenue now comes from advanced nodes (7nm and below), up from just 50% a year ago. This shift strengthens its pricing power and margins, securing TSMC’s long-term dominance in AI and HPC processing.
Meanwhile, Intel (NASDAQ:INTC) continues to fall further behind, with its manufacturing process unable to compete with TSMC’s efficiency and cost structure. Samsung is still struggling to perfect its 3nm gate-all-around (GAA) technology, leaving TSMC as the only foundry capable of producing chips at the scale and efficiency needed for next-gen AI applications.
TSMC’s U.S. Expansion – A Strategic Move or a Margin Killer?
TSMC’s Arizona fabs are a major development in U.S. semiconductor independence. Apple has already begun production at the Arizona plant, and the company is reportedly accelerating Fab 3 construction due to pressure from U.S. policymakers under the “Made in America” initiative.
While this move reduces geopolitical risk and secures U.S. government incentives, it also comes with challenges. Labor costs in the U.S. are significantly higher than in Taiwan, raising concerns about TSMC’s ability to maintain its industry-leading margins. If production outside Taiwan leads to higher costs, will TSMC be forced to pass these costs onto customers, potentially impacting demand?
3nm Chips and AI CapEx – Will TSMC Maintain Its Lead?
The explosion in AI demand has fueled massive spending on TSMC’s 3nm and 5nm chips, which are essential for powering the next generation of AI models. TSMC is expected to control over 90% of the global 3nm chip production in 2025, a near-monopoly in the most advanced semiconductor technology.
However, some investors fear that AI capital expenditures (CapEx) might slow after companies like Microsoft (NASDAQ:MSFT) and Meta (NASDAQ:META) spent billions on AI infrastructure in 2024. Will AI spending continue at the same pace, or is a pullback coming?
Nvidia’s recent earnings suggest that AI demand remains strong, with no slowdown in CapEx investments from cloud providers. Meanwhile, OpenAI is reportedly exploring a partnership with TSMC to develop its own custom AI chips, further reinforcing TSMC’s role in the AI revolution.
TSMC Stock Valuation – Is It Still a Buy at $187?
TSMC is currently trading at 21.5x forward earnings, which appears reasonable given its growth trajectory. Analysts now project TSMC’s EPS to reach $10.67 in 2026, and some estimates suggest $12 by 2027.
Using a 30x price-to-earnings (P/E) multiple, a fair value for TSMC in 2026 would be $360 per share, implying a 93% upside from current levels. Even at a more conservative 26x multiple, TSM stock would still be worth $277, or 48% higher than today’s price.
TSMC’s Future – What Could Go Wrong?
While TSMC is in a dominant position, there are risks investors must consider:
- Geopolitical Tensions – Taiwan remains a geopolitical flashpoint. Any escalation in U.S.-China relations could impact TSMC’s operations or access to critical markets.
- U.S. Manufacturing Costs – While expanding in the U.S. provides security, it could weigh on margins if production costs rise too much.
- AI Spending Slowdown – If companies reduce AI CapEx after the 2024 boom, TSMC could see softer demand for its most advanced chips.
- Customer Concentration Risk – Nvidia, Apple, and AMD account for a significant portion of TSMC’s revenue. Any shift in chip suppliers could impact TSMC’s growth.
TSMC Stock – Buy, Sell, or Hold?
With TSMC’s revenue soaring 35.9% year-over-year, strong AI-driven demand, and a dominant position in 3nm and 5nm chip manufacturing, the company remains one of the best semiconductor investments on the market. While concerns about U.S. manufacturing costs and AI spending cuts persist, the stock’s 21.5x forward earnings multiple still looks attractive compared to its long-term growth potential.
If TSMC maintains its momentum and trades at 30x earnings in 2026, its stock price could reach $360, nearly doubling from today’s $187. Even at a conservative 26x multiple, TSM would still have nearly 50% upside.
Investors looking for a high-quality semiconductor stock with strong growth, pricing power, and dominant AI exposure should consider TSMC as a long-term buy.
