TSMC Stock Maintains High-Conviction AI Play Status With $220 Price Target

Business Insider

a day ago

Taiwan Semiconductor Manufacturing Company (TSM), or TSMC for short, the world's numero uno pure-play semiconductor foundry, has surged nearly 20% over the past month. Despite this impressive rally, my outlook remains bullish.
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The company is well-positioned to benefit from powerful tailwinds, including relentless AI-driven demand, a dominant—nearly monopolistic—position in advanced chip manufacturing, ongoing geographic diversification, and a steady cadence of technological breakthroughs.
Unveiling Next-generation Technologies in the Coming Years
TSMC continues to be the principal manufacturer and primary supplier of chips for leading AI powerhouses, including Nvidia (NVDA), Advanced Micro Devices (AMD), Apple (AAPL), and Qualcomm (QCOM). Notably, TSM is also the producer of Nvidia's cutting-edge Blackwell chip series, which has recently gained immense popularity.
TSMC's 3nm process currently represents the most advanced semiconductor technology in the industry, delivering superior power efficiency and performance. Looking ahead, anticipation is building around the company's upcoming 2nm and 1.6nm nodes, scheduled for launch in late 2025 and 2026, respectively.
The 2nm technology, referred to as N2, remains on track for volume production in the second half of 2025. This next-generation process is expected to deliver a 10–15% improvement in processing speed at the same power consumption, or a 20–30% reduction in power usage at equivalent performance. Following that, the 1.6nm process is projected to further improve power efficiency by an additional 15–20% over the 2nm node.
These advancements are especially timely, as data centers grapple with rising energy costs. The shift to more power-efficient chips is becoming not only a technological imperative but also an economic necessity. This positions TSMC as a key enabler in the ongoing global semiconductor upgrade cycle.
Reflecting this momentum, TSMC has outlined strong long-term growth expectations. The company projects its AI-related chip revenue to grow at a compound annual growth rate (CAGR) of 45% over the next five years, while overall revenue is forecast to grow at a 20% CAGR during the same period. These figures underscore the company's pivotal role in powering the future of computing.
Such growth potential hasn't gone unnoticed. Famous investor Cathie Wood 's Ark funds recently purchased 241,047 shares of Taiwan Semiconductor, worth $46.3 million, signaling firm institutional conviction.
TSM Has Unrivaled Market Leadership
TSM commands an overwhelming 64.9% global market share in the foundry segment, dwarfing its closest competitors— Samsung Electronics (SMSN) and Intel (INTC), according to Statista. Its unparalleled scale, deep client relationships, and technological edge create formidable barriers to entry.
This dominant position grants TSM significant pricing power. Clients, many of whom have relied on TSM for decades, are unlikely to switch suppliers given the risk of falling behind in the rapidly evolving AI race.
One of the major risk factors associated with TSM is its geographical location in Taiwan, which poses the risk of a takeover by China. However, TSM is prioritizing geographic diversification as a core strategic initiative, proactively addressing these risks by diversifying its global manufacturing footprint.
In addition to its $65 billion investment in U.S.-based fabs, TSM has committed a further $100 billion to expand capacity globally. Its Arizona facility is reportedly operating at full capacity through 2027, highlighting robust demand. This geographic diversification not only reduces exposure to potential tariffs but also strengthens TSM's resilience to geopolitical volatility.
Beyond the U.S., TSM is also establishing a new chip design center in Munich, Germany, as well as a manufacturing plant in Dresden, Germany, and new fabs in Japan. Taiwan Semiconductor's strategic investments beyond its home base reflect prudent risk management and reinforce its strategic shift toward a more balanced global presence.
Pre-Earnings Numbers Point to Positive Outlook for Upcoming Earnings
TSM is set to report its Q2 2025 earnings on July 17. The company is projected to report earnings per share (EPS) of $2.30, representing a 57.5% year-over-year increase. Additionally, Q2 revenues are projected to increase by 13% year-over-year, ranging between $28.4 billion and $29.2 billion, driven by high demand for its advanced 3-nanometer (nm) and 5-nm processes.
On May 9, TSM unveiled impressive revenue figures for April 2025, marking the highest ever figure in any single month in the company's history. April net revenues galloped 48.1% year-over-year to 349.6 billion New Taiwan dollars (approximately $11.6 billion). It's worth noting that TSM anticipates 24% to 26% sales growth for FY2025, driven by strong demand for its latest nanochips amid the AI surge.
Importantly, TSM trades at an attractive valuation compared to its peers. In terms of its valuation, TSM looks cheap. Currently, it's trading at an attractive forward P/E ratio of 21x, compared to much higher multiples of its peer group. Semiconductor company Advanced Micro Devices is trading at a higher forward P/E multiple (28x), while the AI prodigy Nvidia is trading at a forward P/E of 32x.
Is TSMC a Buy, Sell, or Hold?
On Wall Street, TSM stock carries a Strong Buy consensus rating based on seven Buy, one Hold, and zero Sell ratings over the past three months. TSM's average stock price target of $219.43 implies approximately 11% upside potential over the next twelve months.
The semiconductor industry continues to experience strong growth, driven largely by the rapid adoption of artificial intelligence technologies. TSMC, with its unmatched manufacturing capabilities, deeply embedded customer relationships, and advanced technology roadmap, is exceptionally well-positioned to capitalize on this transformative trend.
The company's timely investments in next-generation nodes—specifically 2nm and 1.6nm—alongside its global manufacturing expansion, align well with rising demand fueled by a broad upgrade cycle across the tech landscape. These factors collectively make TSMC a compelling long-term investment opportunity. With a favorable valuation and strong earnings momentum, the current environment presents an attractive entry point for investors looking to gain exposure to the accelerating AI megatrend.