Should Investors Buy Taiwan Semiconductor Stock Before Earnings?

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I’m keeping a close eye on Taiwan Semiconductor, or TSMC, as they report their Q3 2025 earnings on October 16th. As a major player in advanced semiconductor manufacturing – they make most of the world’s best chips – I believe this stock has strong long-term potential. So much of the progress we’re seeing in AI simply wouldn’t be possible without their capabilities, and that makes me confident they’ll continue to outperform the market for years to come.

Despite reaching a record high, TSMC’s strong growth isn’t always enough to justify buying the stock at its current price. With an earnings report coming up, the question is whether investors should buy now, or wait for a potential dip in price.

The bull case in TSMC stock

TSMC, the world’s leading semiconductor manufacturer, currently holds over 70% of the market, according to TrendForce data from the second quarter of 2025. This is an increase from 67% in the prior quarter, though the company still faces potential challenges to its continued success.

Grand View Research predicts AI will grow by an average of 32% each year through 2033. Considering this, along with other positive trends, TSMC is likely to maintain its strong growth in the years ahead.

The company is growing faster than expected and this strong growth is predicted to continue. Revenue in the first half of 2025 reached $56 billion, a 40% increase compared to the same time last year. They anticipate revenue between $31.8 and $33 billion for the third quarter, which would be a roughly 38% increase.

Investors should be aware that the company has exceeded revenue expectations in its last four reports. If this trend continues, we could see the strong revenue growth – around 40% – from the first half of the year continue into the third quarter.

Investors should pay attention to sales of the most cutting-edge chips – those measuring between 2nm and 5nm, which are essential for advanced AI. TSMC is currently the leader in this area, as Samsung is the only other company capable of producing chips this small.

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Areas of danger

Additionally, even if it is likely to beat earnings estimates, TSMC faces significant challenges.

The company is primarily focused on meeting customer needs. They’ve already invested nearly $20 billion in property and equipment this year, with a large portion going towards new factories in Arizona – they plan to spend a total of $165 billion on six advanced manufacturing sites there. While that’s a significant investment, they’ll likely need to continue spending at this level, or even increase it, to keep up with ongoing demand.

A key issue is that most chip production happens in Taiwan, a region with significant political risks due to its location near China. While investors disagree on how serious these risks are, many believe China wouldn’t allow anything to happen that could interrupt the chip supply.

Investors should keep in mind that Warren Buffett previously had Berkshire Hathaway sell its shares of TSMC due to this very issue, so it’s important to be cautious.

This problem could also explain why TSMC’s stock price hasn’t been as high as some other companies. Over the past five years, its price-to-earnings ratio has averaged around 25, which is significantly lower than that of major customers like Apple and Nvidia.

As a financial observer, I’m looking at TSMC and while their current price-to-earnings ratio of 33 seems reasonable given their impressive 40% revenue growth, history suggests it doesn’t usually go much higher than 40. This means investors might be taking on extra risk if they’re willing to pay a significantly higher price for the stock relative to its past performance.

Should investors buy TSMC stock before earnings?

Right now, there’s nothing clearly influencing investors to rush into or hold off on buying before the earnings report comes out.

It’s uncertain how the market will react when TSMC announces its third-quarter earnings. However, some investors who prefer to avoid risk might be concerned, especially considering the company’s increasing price-to-earnings ratio.

If you’re considering investing, a good approach is to invest half of your money now and wait for the upcoming report before investing the rest. Investors who regularly invest a fixed amount, regardless of price, are likely already doing this, and it could be a smart strategy for others as well, given the uncertainty of what will happen in the near future.

Assuming global political issues don’t worsen, TSMC’s stock is likely to continue rising because they’re having trouble keeping up with the high demand for AI chips. Because of this, holding onto TSMC stock for the long term is probably more important than trying to time the market and pick the perfect moment to buy.

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2025-10-04 17:53