Semiconductors · #35 in the Retail 100

Taiwan Semiconductor Manufacturing

TSM

The AI spending bet↑China's cheap AI models↓

Our rating: hold
12-month target: $503.23 +24.3%
Expected vs. S&P 500: +6.6 ptsSee the math
Next earnings: Jan 21In 77 daysEarnings calls page ↗

TSMC expects its overseas factories, including Arizona, to cost it 3 to 4 points of gross margin in later years, up from about 2 points now.

Summary

TSMC makes chips for companies that design them but own no factories, including most leading AI processors. AI demand has pushed revenue to records, and TSMC still cannot build fast enough. Keeping up is getting more expensive: new 2-nanometer lines and overseas factories are trimming margin, and spending will climb for years. The stock trades above its usual valuation, so it depends on margin holding up as those costs arrive.

$404.80

+$107.10 (+35.98%)Past year

What Taiwan Semiconductor Manufacturing does

TSMC makes chips for companies that design them but own no factories, including most leading AI processors. It earns about 72% of the industry's contract chipmaking revenue because few rivals can match its newest processes.^7,30,31,32

What it sells

AI and computing chips58% of revenue, FY2025
Processors and AI accelerators for data centers and PCs. Their share of TSMC's revenue has risen from 43% in 2023.
Smartphone chips29% of revenue, FY2025
Main processors and other chips for phones. Their share has fallen from 38% in 2023 as AI chips grew.
Connected devices5% of revenue, FY2025
Chips for smart home devices, wearables and other gadgets that connect to the internet.
Car chips5% of revenue, FY2025
Chips for cars, which need parts that last for years and rarely fail.

Who buys it

Chip designers that own no factories, such as NVIDIA and AMD. North America was 75% of 2025 revenue. The largest customer was 19%, the second 17% and the ten largest 78%, so a few designers' plans drive TSMC's sales.

Where you've seen it

Its name is on no gadget, yet the AMD and NVIDIA chips inside many PCs are made in its factories.

The backstory

AI chip demand has outrun TSMC's factories: customers such as NVIDIA want more leading-edge chips and packaging than it can supply, and CEO C.C. Wei said in October that the gap remains large. High-performance computing is now 68% of revenue. Washington also wants those chips made in America, and a January 2026 trade deal ties tariff relief to U.S. factories. Wei has committed $265B to Arizona.

How the business makes money

Why nearly every AI chip company pays TSMC^{1,2,4,5,9,10,23,26,27,28}

Step 1
NVIDIA, Apple, AMD and others design chips but own no factories, so they pay TSMC to make them. It took 72.5% of contract chipmaking revenue last quarter.
Step 2
Few rivals can match its newest processes, so those chips sell at higher prices.
Step 3
Demand above capacity keeps factories full, spreading fixed costs. TSMC keeps about 65¢ of each $1 of sales after the cost of making the chips.
Step 4
Profits pay for the next factories, $60B to $64B this year. Newer overseas plants cost more to run.
What shareholders get
The stock is betting earnings rise about 28% next year and TSMC still keeps over 60¢ of each $1 as those costs arrive.

Advantages

Scale no rival matches

Major advantage

TSMC's biggest advantage. It took 72.5% of contract chipmaking revenue last quarter by TrendForce's count, about 12 times Samsung's.⁷

First to each new process

Strong advantage

Strong, and renewed with each process. Its 2-nanometer chips were already 8% of wafer revenue last quarter, while Intel targets 2028 for volume production of its comparable process.^27,12,25

Tariff relief for its U.S. factories

Supporting

Helpful, not lasting. Under the January 2026 U.S.-Taiwan deal, companies building U.S. chip factories can import up to 2.5 times that capacity tariff-free during construction, and TSMC's Arizona plan qualifies.^10,4

What's changing

Raising growth forecast while margin eases

On October 15 TSMC reported record third-quarter revenue and raised its full-year growth forecast. Gross margin slipped from the quarter before as 2-nanometer production ramped. The U.S.-listed shares still fell 1.8% that day, as investors focused on the margin and on management's plan to spend significantly more through 2028.^{26,27,28,23,6}

Competitors

Who else an investor would consider, and how they compare.

Company	Market value	What it does	Compared with Taiwan Semiconductor Manufacturing (TSMC)
Taiwan Semiconductor Manufacturing (TSMC)this stock	$2.10T	TSMC makes chips for companies that design them but own no factories, including most leading AI processors. It earns about 72% of the industry's contract chipmaking revenue because few rivals can match its newest processes.
Samsung Electronics (Korea-listed)private	—	Memory chip giant that also makes chips for other companies as a smaller side business.	Samsung's contract arm trails badly; TSMC's contract revenue was about 12 times larger.⁷
IntelINTC	$478.55B	Designs its own PC and server chips and is trying to make chips for others.	Intel is still rebuilding its factories; TSMC already makes the top chips for everyone.^12,25
SMIC (Hong Kong and Shanghai-listed)private	—	China's largest contract chipmaker, mostly serving Chinese customers on older technology.	SMIC is cut off from top chipmaking tools; TSMC makes the most advanced chips.⁷
GlobalFoundriesGFS	$24.69B	U.S.-based chipmaker making older, specialized chips for cars, phones and defense.	GlobalFoundries skips the cutting edge; TSMC leads it and is far bigger.⁷

Leadership

Who runs the company, and how the stock has done under the CEO.

TSM 12xS&P 500 +211.9%Total return with dividends since Jun 2018 · log scale

20192020202120222023202420252026

C.C. WeiChairman and CEO8.3 yrs

Wendell HuangSVP and CFO7.1 yrs

Y.P. ChynEVP and Co-COO2.6 yrs

Y.J. MiiEVP and Co-COO2.6 yrs

When Wei was named (Oct 2017), the stock moved +1.6% that day; the S&P 500 moved +0.4%.

Wall Street on Wei: PositiveCiti rates it a Buy and raised its price target, expecting third-quarter results to beat TSMC's own forecast. Goldman Sachs raised its price target, citing AI demand for graphics chips, networking chips and server processors.^L7,L8

Leadership sources (8) · researched Oct 2026

L1TSMC Shareholders Approve NT$8 Cash Dividend and Elect Board of Directors; Board of Directors Elect Mark Liu as Chairman and C.C. Wei as CEO and Vice Chairman · TSMC, 2018-06-05
L2TSMC Dr. Morris Chang Announces Retirement in June 2018. Future Dual Leadership Will Be Mark Liu as Chairman And C.C. Wei as CEO. · TSMC, 2017-10-02
L3TSMC Shareholders Elect Board of Directors; Board of Directors Unanimously Elects Dr. C.C. Wei as Chairman and CEO · TSMC, 2024-06-04
L4TSMC Form 6-K: Wendell Huang to be appointed Chief Financial Officer and Spokesperson · TSMC / SEC, 2019-07
L5TSMC Special Board of Directors Meeting Resolution · TSMC, 2024-02-29
L6TSMC Executives · TSMC, 2026-10-11
L7Citi Raises TSMC (TSM) Price Target Amid Optimism on Q3 Results · GuruFocus, 2026-10-07
L8Goldman Sachs Raises TSMC (TSM) Price Target, Predicts Strong Growth Ahead · GuruFocus, 2026-10-05

Bull vs. bear: two bets on the same stock

1
A share is a small slice of the company. Its value comes from the profits the company will make in the future.
2
Nobody knows those profits yet. Buyers (bulls) pay today's price betting they'll beat what most people expect. Sellers (bears) bet they'll fall short.
3
When results come in, the price moves toward whichever side was right, and that side makes money.

The question they disagree on

Can TSMC keep gross margin above 60% through 2027 as 2-nanometer production, overseas factories and capital spending above $60B a year push costs up?^{1,2,3,5,6,8,13,16,21,26,27,28}

Bull case: why buyers buy

If AI demand keeps factories full, TSMC can charge enough for 2-nanometer chips and packaging to cover the new costs and keep gross margin in the mid-60s.

Margin is still well above the danger line. TSMC guides fourth-quarter gross margin to 65% to 67%.
Demand keeps beating TSMC's own forecasts. Management raised its 2026 growth outlook from slightly above 40% in July.
AI chips are still the growth engine. High-performance computing grew 22% from the prior quarter, and CEO C.C. Wei saw no sign of a slowdown.
Profits grow faster than sales, and estimates keep rising. Earnings per share rose 69% in Taiwan dollars last quarter, and analysts raised 2027 estimates over the past 90 days.

Bear case: why sellers sell

If AI orders slow just as new factories open, their fixed costs and pricier overseas production pull gross margin toward 60%, and a stock valued above its history falls.

New factories are eating into margin. Management expects overseas plants to cut gross margin by as much as 3 to 4 points in later years.
Spending is set to rise for years. Management expects capital spending from 2026 through 2028 to run well above the past three years.
Equipment is getting pricier. The finance chief said tool prices are rising, and TSMC wants revenue to grow faster than spending.
The stock already trades above its history. It sells at about 19.5 times expected earnings, above its five-year average.

Where Delphi landsholdWe think today's price already weighs both sides fairly.See why

What to watch

The numbers that will settle the debate.

Gross margin■ flat

66.4% last quarter, down from 67.7% the quarter before but up from 59.5% a year ago^27,28

Shows whether prices cover the cost of new and overseas factories, against guidance of 65–67% for the quarter just ended.

Revenue growth▲ improving

Up 41% in dollars from a year earlier last quarter; fourth-quarter guidance of $52.3B to $54.3B^26,27

Shows whether AI demand is still growing faster than TSMC's 44% full-year forecast.

Free cash flow▲ improving

NT$476.6B last quarter, up from NT$287.4B the quarter before, as capital spending eased²⁷

Shows how much cash is left after factory spending to pay dividends.

Next earnings report

Jan 21

In 77 days

Earnings calls page ↗

Expected earnings per share: $5.16
Expected revenue: $52.75B

What to listen for: Gross margin against the 65% to 67% guide, and the first number for 2027 capital spending, which together show whether prices keep up with factory costs.^27,28

What would prove this wrong

✕Gross margin falls below 60% while capital spending keeps rising.
✕Major AI customers cut or delay orders for chips and packaging.
✕Intel or Samsung wins a large leading-edge customer such as NVIDIA or Apple.
✕A China-Taiwan crisis disrupts production in Taiwan.

Our ratingHoldas of Nov 3 close, $404.80 · what ratings mean

Earnings should rise about 28% as AI demand keeps factories full, but the stock trades above its five-year typical valuation, so expected gains beat the S&P 500 only modestly.

12-month target: $503.23 (+24.3%)
Plus dividend: +0.8%
S&P 500, same method, with dividends: +18.5%
Expected vs the market: +6.6 points

The math behind the recommendation

Three 12-month price scenarios, weighted by probability, compared with the S&P 500 under the same method.

Now $404.80

Target $503.23

bull case30% likely

$607.59 +50%

AI demand keeps factories full and gross margin stays in the mid-60s despite 2-nanometer and overseas costs, putting earnings near the top of estimates.

$29.41 earnings per share × 20.7 = $607.59

base case50% likely

$485.38 +20%

Revenue grows about 35% in 2027 as analysts expect, and gross margin settles in the low 60s.

$27.69 earnings per share × 17.5 = $485.38

bear case20% likely

$391.29 -3%

AI customers slow orders as new factories open, gross margin slips toward 60%, and earnings fall toward the low end of estimates.

$25.63 earnings per share × 15.3 = $391.29

Why these odds: Analysts raised 2027 estimates over 90 days. TSMC beat per-ADR earnings by about 4% and revenue by about 3%, and raised its 2026 growth forecast to around 44%. Margin pressure from new factories persists.

How the prices are built: Wall Street expects earnings per share of $27.69 for the year starting a year from now (analysts range from $23.56 to $31.13). Today the stock trades at 18.7 times next year's earnings per share; its five-year middle is 16.9. Because earnings per share is forecast to grow fast, valuations are cut 4%, since fast growth rarely keeps its price.^{13,14,15,16,17,20,21,22,26,27}

What tests the call: Q4 2026 results and 2027 capital spending (Jan 14)

Buy means expected to beat the S&P 500 by 10+ points over 12 months; Sell means expected to trail it by 10+. Inputs gathered Oct 16; the recommendation updates with the price every day. Model-generated, not personalized investment advice. How ratings work · Track record

What the price assumes

At $404.80, Taiwan Semiconductor Manufacturing is priced about like the average stock

Taiwan Semiconductor Manufacturing trades at 19 times the earnings analysts expect over the next 12 months. That ratio is the multiple: what investors pay today for each dollar of a year's earnings. That is pricier than it has been 80% of the time over the past five years, when the middle was 17.

Analysts expect earnings to grow about 28% the year after, against about 16% for the S&P 500. The S&P 500 trades at 19 times. The price assumes Taiwan Semiconductor Manufacturing's earnings grow roughly in line with forecasts, with no premium for doing better.

Taiwan Semiconductor Manufacturing multiple: 19×
S&P 500 multiple: 19×
Base case: +20%
Bear case: −3%

The skewOur bear case loses about 17¢ for every $1 our base case makes. That ratio, how much you stand to lose against how much you stand to make, is the skew.

Last earnings

No reported quarters available.