Taiwan Semiconductor Manufacturing Company Ltd. TSM is scheduled to report its first-quarter 2025 results on Thursday.
The Zacks Consensus Estimate for first-quarter earnings is pegged at $2.02 per share, implying a 46.4% increase from the year-ago quarter’s reported number. The estimate has been revised a penny downward over the past 60 days.
Zacks Investment Research
Image Source: Zacks Investment Research
Taiwan Semiconductor expects revenues between $25 billion and $25.8 billion. The Zacks Consensus Estimate is pegged at $25.2 billion, indicating a rise of 33.6% from the year-ago quarter’s reported actuals. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
Taiwan Semiconductor has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 7.6%.
Taiwan Semiconductor Manufacturing Company Ltd. Price and EPS Surprise
Taiwan Semiconductor Manufacturing Company Ltd. price-eps-surprise | Taiwan Semiconductor Manufacturing Company Ltd. Quote
Earnings Whispers for TSM
Our proven model does not conclusively predict an earnings beat for Taiwan Semiconductor this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
TSM has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell) at present. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Factors Likely to Influence TSM’s Q1 Results
Taiwan Semiconductor continues to assert its dominance in the semiconductor space, benefiting from a robust industry rebound fueled by the growing prominence of artificial intelligence (AI). The surge in AI-driven applications (in manufacturing and end products) has been a significant catalyst for chipset manufacturers like TSM. The rise of data-centric technologies, especially cloud computing, the Internet of Things (IoT) and the metaverse, has increased the demand for semiconductors, contributing to the company’s business performance in the to-be-reported quarter.
Taiwan Semiconductor’s consistent investments in next-generation and specialty technologies are likely to have driven growth in the first quarter. Its leadership in 7nm and 3nm chip technologies has been instrumental, offering advanced capabilities to customers in high-demand industries. The 5nm process technology has also contributed to TSM’s wafer revenues, reflecting the solid market adoption of these smaller, more efficient chipsets. Taiwan Semiconductor's strategic focus on ramping up 3nm production while advancing its 2nm development positions it for continued leadership in the semiconductor space.
Taiwan Semiconductor's expansion into high-performance computing (HPC) and smartphone sectors is expected to have bolstered its performance in the to-be-reported quarter. The company’s innovative 3nm Fin Field-Effect Transistor (FinFET) technology, alongside its range of FinFET options (spanning 4nm, 5nm, 6nm and 7nm nodes), has become a key growth driver, particularly in HPC applications. TSM’s advanced FinFET technologies, such as the enhanced 3nm and plus variants of the 4nm and 5nm chips, have helped it maintain strong momentum in the smartphone market.
Taiwan Semiconductor's technological advancements are anticipated to have supported its expansion into automotive, IoT and digital consumer electronics. The adoption of TSM’s multi-project wafer processing service, which helps customers cut costs, is likely to have boosted the company’s top-line growth. This diversification across industries enhances TSM’s resilience and offers multiple revenue streams.
However, rising operational costs, especially from its overseas expansion into Arizona, Japan and Germany, are likely to have hurt Taiwan Semiconductor’s gross margin in the to-be-reported quarter. Also, higher electric prices in Taiwan are anticipated to have negatively hurt its profitability in the first quarter.
TSM Stock Price Performance & Valuation
Taiwan Semiconductor shares have appreciated 10.6% over the past year, outperforming the S&P 500 index’s rise of 7.5% and the Zacks Computer and Technology sector’s growth of 3.3%. Compared to other major players in the semiconductor space, TSM stock has outperformed Marvell Technology MRVL and Micron Technology MU but underperformed Broadcom AVGO. Over the past year, Broadcom stock gained 33.7%, while shares of Marvell Technology and Micron Technology have plunged 23.8% and 42%, respectively.
One-Year Stock Price Performance
Zacks Investment Research
Image Source: Zacks Investment Research
Now, let’s look at the value that Taiwan Semiconductor offers to its investors at the current levels. Currently, TSM is trading at a discount, with a forward 12-month P/E of 16.17X compared with the sector’s 22.41X.
TSM Forward 12-Month P/E Ratio
Zacks Investment Research
Image Source: Zacks Investment Research
Taiwan Semiconductor also trades at a lower P/E multiple compared with Broadcom’s 24.91X and Marvell Technology’s 17.95X. However, it has a way higher P/E multiple than Micron Technology’s 7.64X.
Investment Thesis for TSM Stock
Taiwan Semiconductor’s planned capital expenditure of $38-$42 billion in 2025 highlights its commitment to maintaining technological superiority. Its ongoing development of 2nm process technology, promising up to 30% power savings over 3nm chips, is a testament to its focus on efficiency and innovation.
Taiwan Semiconductor is also diversifying into high-growth sectors like automotive and the IoT. Automotive chips, driven by trends like electric vehicles (EVs) and autonomous driving, now account for 4% of its revenues, while smartphone chips remain a significant 35%. These initiatives position TSM to capture emerging opportunities across industries.
Despite its strengths, Taiwan Semiconductor faces near-term headwinds. Rising operational costs, especially from its overseas expansion into Arizona, Japan and Germany, are a major concern. These new facilities, while strategically important for diversification, are expected to dilute gross margins by 2-3% annually over the next three to five years due to higher labor and utility costs, coupled with lower initial utilization rates.
Higher energy prices in Taiwan, following a 25% electricity hike in 2024, pose additional challenges. Geopolitical tensions, particularly between the United States and China, further cloud the outlook. With significant revenue exposure to China, export restrictions and supply-chain disruptions could pressure Taiwan Semiconductor’s operations.
What Should Investors Do With TSM Stock?
Taiwan Semiconductor’s technological leadership and strategic investments make it a compelling long-term player in the semiconductor space. However, short-term challenges, including rising costs and geopolitical risks, warrant caution. Though the company has a solid track record of beating earnings estimates, it is prudent for investors to stay away from investing in the stock for now and wait for the upcoming quarterly results to get more clarity about its near-term prospects.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
