Taiwan Semiconductor Manufacturing Company (TSM) makes a compelling investment case given its existing position as the world’s largest and most dominant advanced semiconductor manufacturer. Many pragmatic investors are buying into TSM while penciling in additional purchases if U.S.-China international relations improve. Given the strategic alliance between Russia and China, the end of the Ukraine war would be a strong indicator of this shift.
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With TSM stock currently stuck in a short-term holding pattern and down 9% year-to-date, now could be a good time to begin building a long position in TSM in anticipation of a return to normalcy once much of the geopolitical backwash has cleared.
Illustrating how economics often outweighs politics, TSMC recently announced a $100 billion investment in U.S. manufacturing, packaging, and research & development (R&D), bringing its total U.S. investment to $165 billion. This represents a significant shift in global supply-chain security, as Taiwan is a central hub for advanced semiconductor production. The persistent threat of Chinese interference in Taiwan remains a substantial risk for international markets, with the potential to cause an extensive unwind of highly-priced stock assets.
TSMC Doubles Down on American Greatness
By diversifying its fabrication plants outside Taiwan and into the U.S., TSMC is not just making a strategic business decision—it is making a geopolitical one. The semiconductor giant’s biggest customers, including Apple (AAPL), Nvidia (NVDA), AMD (AMD), and Qualcomm (QCOM), all hail from the U.S., so the move soothes both economic and political frictions. Setting up shop in America allows TSMC to shorten production cycles, accelerate innovation, and strengthen its relationships with the very U.S. tech juggernauts that are its customers.
Moreover, an onshore R&D presence allows American companies to work more closely with TSMC, leading to more optimized chip designs and cutting-edge developments in AI and robotics. For tech investors, this is a bullish signal for both TSMC and the broader AI and semiconductor industry. For investors thinking the AI markets are reaching a peak, think again—they’re just getting started.
Politics Improves TSMC Stock Valuation
From a technical standpoint, TSMC is not trading at fire-sale prices and is not overvalued. The stock offers reasonable value, especially considering its dominant market position and growth trajectory. For starters, TSM’s 14-day Relative Strength Index (RSI) figure of 36.7 indicates strong short-term sentiment. Most importantly, TSMC’s P/E ratio is 25.7, slightly above its five-year average of 24.4, and still priced with room for further upside.
TSMC (TSM) revenue, earnings and profit margin history
Given its earnings growth potential, these figures suggest that TSMC is a reasonably priced investment. The company will likely post an impressive 30% earnings-per-share (EPS) growth in FY2025 and 20% in FY2026. When you pair this with its exceptional management team and deep technological moat, it becomes clear why the stock presents a compelling opportunity.
By December 2026, I expect the P/E ratio to compress due to decelerating growth. I forecast a P/E of 20 and an EPS of ~$11.50, resulting in a 21-month price target of $230. This implies a 15% annualized return—modest but reinforced by U.S. security commitments and strong management.
Due to its association with AI, this investment is also highly susceptible to speculative surges. If the stock price surpasses $230 by late 2025 or early 2026, I would be inclined to trim my long position and reallocate capital into a more attractively valued opportunity. With EPS growth likely to dip below 10% in FY2027 or 2028, market saturation risks will become harder to ignore, making a well-timed exit even more necessary.
Geopolitical Risk is Tangible Yet Manageable
TSMC’s expansion into the U.S. is reassuring, but it will take years before these facilities are fully operational. In the meantime, the risk of geopolitical escalation between China and Taiwan cannot be ignored. As a possible detrimental scenario, a blockade of Taiwan could trigger a market crash of approximately 50%. A full-scale invasion would be an absolute catastrophe for TSMC and every other tech stock that relies on supplies from Taiwan.
Given China’s historically close relationship with Russia, the outcome of the Ukraine war remains a critical geopolitical crossroads. If the war drags on, China may feel emboldened to act on Taiwan. Conversely, a diplomatic resolution that improves U.S.-China relations would reduce the likelihood of conflict.
To mitigate at least some of the geopolitical market risks, I’m maintaining a 30% cash-equivalent position in my portfolio. Should geopolitical stability improve and TSMC’s U.S. operations reach maturity, I may reduce my cash allocation to 25%. War remains the most devastating factor for any market, so the specter of yet another conflict zone opening up in addition to the Middle East and Ukraine is a scenario investors shouldn’t take lightly. If you fail to prepare, prepare to fail.
Is TSMC a Buy, Hold, or Sell?
On Wall Street, TSMC has a Strong Buy consensus rating based on five Buys, one Hold, and zero Sells. The average TSM price target is $245 per share, indicating a ~36% upside over the next 12 months. This reaffirms my outlook on TSMC and further validates the broader bullish investment case for the stock.
TSMC: A Lucrative Investment with Geopolitical Caveats
I follow Warren Buffett’s golden rule: invest in companies with exceptional management, wide operational moats, and long-term growth potential. TSMC checks all these boxes. However, the Taiwan invasion risk is an unavoidable caveat. Without this overhanging geopolitical uncertainty, TSMC would warrant a much larger position in my portfolio alongside other AI-related tech stocks. Given the current landscape, I continue to invest defensively, balancing high-conviction plays like TSMC with hedging assets like gold and a strong cash position.
Despite these concerns, I remain optimistic. With the U.S. government and prominent tech leaders pulling every lever possible to bolster U.S. semiconductor production, TSMC is well-positioned to thrive in the coming years. My TSMC position reflects my confidence in its future—cautious but firm. For now, I watch and wait. But if broader conditions improve and geopolitical relations settle as expected, I plan to double down on TSM stock later this year.
