Taiwan Semiconductor Manufacturing Company TSM has delivered a solid 12.6% gain over the past three months. This performance easily beats the broader Zacks Computer and Technology sector, which rose 4.4% in the same period.
Taiwan Semiconductor stock has also moved ahead of several chip peers, including ASML Holding ASML, Lam Research Corporation LRCX and Marvell Technology, Inc. MRVL. While shares of Marvell Technology have plunged 28.4% over the past three months, ASML Holding and Lam Research have risen 6.6% and 8.8%, respectively.
This outperformance shows investors are increasingly confident in Taiwan Semiconductor’s long-term story, even during a volatile market shaped by trade conflicts and geopolitical risks. We believe this momentum is grounded in strong fundamentals, and TSM’s long-term outlook justifies a hold position for now.
TSM 3-Month Price Return Performance
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AI Boom Fuels Multi-Year Tailwinds for TSM
Taiwan Semiconductor continues to lead the global chip foundry market, and it’s benefiting heavily from the artificial intelligence (AI) revolution. Its manufacturing dominance and scale have made it the go-to partner for advanced chipmaking. Whether it's NVIDIA, Marvell Technology or Broadcom, many top chip designers rely on TSM for producing custom AI accelerators and graphics processing units (GPUs).
In 2024, AI-related revenues tripled, making up a mid-teen percentage of Taiwan Semiconductor’s total revenues, and the momentum is far from over. The company expects AI-related sales to double again in 2025, with an impressive 40% compound annual growth rate over the next five years. This positions TSM as the undisputed backbone of AI-driven technological advancements.
The company kicked off 2025 with excellent first-quarter results. Revenues surged 35% year over year to $25.53 billion, and net income rose 53% to nearly $11 billion in the first quarter. This growth was powered by the booming demand for its advanced 3nm and 5nm nodes, which now account for 58% of total wafer sales.
Taiwan Semiconductor’s first-quarter EPS also jumped 53.6% to $2.12 and surpassed the Zacks Consensus Estimate of $2.03. The stock beat the consensus mark for earnings in each of the trailing four quarters, the average surprise being 6.9%.
Taiwan Semiconductor Manufacturing Company Ltd. Price, Consensus and EPS Surprise
Taiwan Semiconductor Manufacturing Company Ltd. Price, Consensus and EPS Surprise
Taiwan Semiconductor Manufacturing Company Ltd. price-consensus-eps-surprise-chart | Taiwan Semiconductor Manufacturing Company Ltd. Quote
Taiwan Semiconductor plans to ramp up capital spending to between $38 and $42 billion in 2025 to further capitalize on the AI-driven growing demand for advanced chips. This is a sharp increase from the $29.8 billion spent in 2024, with around 70% earmarked for advanced manufacturing capabilities.
Undervaluation Supports a Hold Strategy for TSM
Despite its strong growth, Taiwan Semiconductor stock still looks reasonably priced. It trades at a forward 12-month price-to-earnings (P/E) multiple of 19.96X, which is lower than the sector average of 25.52. This discount adds to the appeal for long-term investors.
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Taiwan Semiconductor also trades at a lower P/E ratio than other semiconductor players, including ASML Holding, Lam Research and Marvell Technology. At present, ASML Holding, Lam Research and Marvell Technology trade at P/E multiples of 26.09X, 20.8X and 20.04X, respectively.
Given its superior scale and exposure to AI growth, TSM’s relative valuation strengthens the case for continuing to hold the stock.
Short-Term Headwinds Are Still in Play for TSM Stock
Despite its strengths, Taiwan Semiconductor faces near-term headwinds. Higher energy prices in Taiwan, following a 25% electricity hike in 2024, pose a considerable challenge, especially as advanced nodes demand greater power.
Softness in key markets like PCs and smartphones also dampens near-term prospects. These traditionally strong revenue drivers are projected to see only low single-digit growth in 2025, limiting Taiwan Semiconductor’s growth despite rising AI demand.
The company’s global expansion strategy adds further strain. New fabs in the United States (Arizona), Japan and Germany are vital for geopolitical risk mitigation, but they come with higher costs. These facilities are expected to drag down gross margins by 2-3 percentage points annually over the next three to five years due to higher labor and energy costs, along with lower utilization rates in the early stages.
Escalating geopolitical tensions, particularly U.S.-China relations, pose strategic risks. With significant revenue exposure to China, Taiwan Semiconductor is vulnerable to export restrictions, supply-chain disruptions or further regulatory pressure. These uncertainties could weigh on near-term performance.
Conclusion: Hold TSM Stock for Now
Taiwan Semiconductor remains a cornerstone of the semiconductor industry. Its unmatched capabilities in advanced chip manufacturing, strong exposure to AI demand and expanding capacity give it a solid long-term trajectory.
However, short-term headwinds, from rising costs and global expansion pressures to geopolitical friction, call for a more cautious stance. Given its valuation and growth backdrop, holding the stock makes the most sense right now.
Taiwan Semiconductor currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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