Taiwan Semiconductor Manufacturing Shares Rise on Strong Outlook. Is It Too Late to Buy the Stock?

Stocks for Taiwan Semiconductor Manufacturing (TSM) soared following the announcement of robust Q2 earnings and a positive forecast for the future. As a result, the share price has climbed approximately 25% in 2021.

The business consistently dominates as a top player in the artificial intelligence (AI) infrastructure sector, given its position as the global leader in manufacturing sophisticated chips utilized by tech giants such as Nvidia and Apple.

Shall we delve deeper into TSMC’s performance to determine if there’s potential for further growth in their stocks, or if the opportunity to purchase them may have passed?

No slowdown in sight

In the face of challenges faced by competitors such as Intel and Samsung, TSMC has solidified its indispensable role within the semiconductor industry’s supply chain, boasting both massive scale and cutting-edge technology know-how. The company stands uncontested as the foremost manufacturer of advanced chips, with an increasing proportion of its earnings stemming from its state-of-the-art manufacturing processes. Nodes, in this context, refer to the number of transistors that can be packed onto a chip; the smaller the node, the higher the processing power and efficiency a chip can achieve.

Last quarter, nodes smaller than 7 nanometers contributed about 74% to their overall income, which is an increase from 67% the previous year. Their latest 3-nanometer technology represented approximately 24% of the total wafer revenue, significantly rising from the 15% it accounted for a year ago.

In the recent quarter, AI chips continued to be the primary factor propelling TSMC’s income expansion, with high-performance computing (HPC) contributing approximately 60% of its total revenue. This HPC revenue increased by around 14% compared to the previous quarter. Interestingly, a year ago, this segment represented only about 52% of the company’s overall revenue.

Boosting the company’s revenue by 44%, it reached an impressive $30.1 billion. The earnings per American Depositary Receipt (ADR) skyrocketed by 67% to hit $2.47, up from $1.48 in the previous year. Meanwhile, its EPS in local currency jumped a significant 61%.

TSMC experienced significant growth in its annual gross margin, expanding by 540 basis points to reach 58.6%. Despite dealing with currency issues and initial production at its Arizona facility, this expansion was achieved. However, the company anticipates facing pressure in the future. This is attributed to ongoing currency challenges and the escalating ramp-up of new facilities in the U.S. and Japan, which are expected to lower Q3’s gross margin to 56.5%. Furthermore, TSMC predicts that its non-Taiwanese manufacturing sites will gradually reduce gross margins by 2% to 3% annually, with this impact potentially increasing to 3% to 4% during the later stages of development.

Moving forward, TSMC anticipates Q3 revenue to fall between $31.8 billion and $33 billion, which is approximately a 38% increase year-on-year at the average. They also expect their operating margin to be anywhere from 45.5% to 47.5%.

I’m thrilled to share the news that TSMC has boosted its full-year revenue projection, anticipating a whopping 30% growth! Previously, they were aiming for “near the mid-20% range.” The primary factor fueling this expansion is the surging demand for Artificial Intelligence (AI), a trend that shows no signs of slowing down.

The company emphasized that data center orders have significantly strengthened compared to mere three months ago, indicating a robust market for AI. Additionally, they highlighted the growing momentum from government-backed AI projects, further fueling this growth.

This positive outlook is reflected in the robust demand for their cutting-edge 3-nm and 5-nm chip technologies. I can’t wait to see what the future holds as we continue to innovate in the world of AI!

TSMC reported that customer behavior hasn’t shifted because of tariffs yet, but acknowledged the potential for future impacts. The company is actively pouring $165 billion into setting up cutting-edge semiconductor manufacturing plants in the United States. Construction on their second factory in Arizona has been finished, and the first one is already churning out high-volume production. Their aim is to construct six factories, two advanced packaging facilities, and an R&D center as part of this expansion project.

Is it too late to buy TSMC stock?

Despite ongoing debates about tariffs and trade policies related to semiconductors, it’s clear that no other foundry globally possesses the vast scale and cutting-edge technical knowledge that TSMC does. Consequently, TSMC will likely produce most of the advanced chips and is exceptionally well-placed among companies to capitalize on the ongoing growth in AI infrastructure development.

Despite facing potential compression in gross margins due to its global expansion, the company exhibits robust pricing strength, suggesting a possibility of exceeding expectations positively in the future. Additionally, TSMC stands to gain from the U.S.’s recent decision to permit Nvidia and Advanced Micro Devices to sell certain chips to China.

Presently, TSMC’s stock stands as a compelling investment opportunity, as it trades at approximately 26 times its forecasted 2025 earnings (P/E ratio). Furthermore, the price-earnings-to-growth ratio (PEG) is roughly 0.7. Generally, stocks with PEG ratios less than 1 are viewed as being undervalued.

All things considered, I believe TSMC remains well-positioned for long-term success, and there’s still time to invest in its stock.

2025-07-22 01:02

No slowdown in sight

Is it too late to buy TSMC stock?

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