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Artificial intelligence (AI) is experiencing its gold-rush moment - from chatbots to generative models, the world is hungry for computing power, and chipmakers are cashing in big. U.S. policymakers are eyeing stakes in tech firms under the CHIPS Act, signaling just how strategic this race has become. At the heart of all this is Taiwan Semiconductor (TSM), the world’s leading chip foundry, whose technological lead in 3nm and 5nm nodes remains untouched.
Nvidia’s (NVDA) visionary CEO Jensen Huang called TSM “one of the greatest companies in the history of humanity” during his recent visit to Taiwan. He revealed that TSM is crafting six next-gen AI products for Nvidia, including the Rubin architecture, its future AI powerhouse. Nvidia’s Taiwan workforce is growing rapidly, with Huang announcing plans for a massive “NVIDIA Constellation” office to strengthen the supply chain.
Plus, Huang even hinted that buying TSM stock could be one of the smartest moves investors can make, underscoring Nvidia’s deepening partnership. That’s a rare, emphatic vote of confidence.
So, with Washington signaling interest, Nvidia locking arms with TSM, and AI’s chip hunger only accelerating, is now the time to grab TSM stock while it’s still trading below July highs?
About TSM Stock
Founded in 1987, Taiwan Semiconductor redefined the industry by pioneering the pure-play foundry model and has dominated ever since. Now valued at $1.2 trillion by market cap, it stands as the world’s leading chipmaker, producing nearly 12,000 products in 2024 for over 500 global clients.
From smartphones to data centers, TSMC’s cutting-edge 3nm and 5nm chips fuel the AI revolution, powering Nvidia, Apple (AAPL), AMD (AMD), and countless others. With operations stretching from Asia to North America, TSMC is quietly shaping the future of computing.
TSM stock remains firmly in a long-term uptrend, trading well above its 200-day moving average, a sign of strong underlying momentum. Over the past 52 weeks, the stock has surged nearly 40%, crushing the S&P 500 Index’s ($SPX) 16.1% gain. In fact, the stock hit a high of $248.28 on July 17 following a stronger-than-anticipated Q2 earnings beat.
However, recent sessions saw TSM dip below its 50-day moving average amid profit-taking in large-cap AI names. Despite the short-term pullback, the stock is still up about 21% year-to-date (YTD), cementing TSMC’s dominance at the forefront of the AI-driven semiconductor race.
TSMC is trading at 23.14 times forward adjusted earnings, below industry peers – a hint at untapped value given its dominance in the AI-driven chip race. But it is not just about cutting-edge semiconductors.
The company is rewarding long-term investors, too. On Aug. 12, TSMC declared another quarterly dividend, taking the annualized payout to $2.89, offering a 1.24% forward yield – edging past the S&P 500 SPDR’s (SPY) 1.11%. With a lean 7.4% payout ratio, there is plenty of room for future hikes. TSMC blends innovation and shareholder returns, positioning itself as both a growth and income powerhouse.
Taiwan Semiconductor’s Stellar Q2 Earnings Report
TSMC’s Q2 earnings results on July 17 showcased why it remains the undisputed leader of the semiconductor world. The company generated $30 billion in revenue, a 38.6% year-over-year (YoY) surge, smashing analyst expectations. Growth was powered by booming demand in high-performance computing (HPC), smartphones, and IoT platforms. Meanwhile, EPS jumped 60.7% to $2.47, beating estimates by 4.2%.
However, Q2 gross margin came in at 58.6%, down 0.2 percentage points sequentially, largely due to unfavorable foreign exchange impacts and margin dilution from overseas fabs, especially the massive Arizona expansion. This pressure was partially offset by higher capacity utilization and ongoing cost optimization efforts.
Advanced nodes continue to drive TSMC’s dominance. 3nm chips contributed 24% of wafer revenue, while 5nm and 7nm added 36% and 14%, respectively. In total, nodes 7nm and below made up 74% of wafer sales, underscoring TSMC’s lead in next-gen fabrication.
On the platform side, HPC led with 60% of revenue, smartphones rose to 27%, IoT climbed 14% YoY to account for 5%, while automotive held steady to account for 5%. Despite Q2 capex being massive, TSMC still ended the quarter sitting on a $90 billion cash pile, setting the stage for aggressive global growth.
Looking ahead, management forecasts Q3 revenue to be between $31.8 billion and $33 billion, with a gross margin anticipated to be somewhere between 55.5% and 57.5%. CEO C.C. Wei highlighted macroeconomic uncertainties, including U.S. tariffs, China’s rebates, and sluggish non-AI demand, but reaffirmed its 2025 capex plan between $38 billion and $42 billion. Central to this is a $165 billion Arizona “giga fab cluster,” expected to handle 30% of TSMC’s 2nm and beyond capacity.
Alongside expansions in Japan and Europe, and 11 new fabs in Taiwan, TSMC is doubling down on growth. Fueled by surging AI, HPC, and smartphone demand, the company is building an unmatched global chip empire.
Wall Street is equally bullish, eyeing $31.46 billion in revenue and 32% annual EPS growth to $2.56 in Q3. Looking ahead, analysts expect profits to rise 39.6% annually to $9.83 per share this year and climb another 11.6% to $10.97 per share in fiscal 2026.
Wall Street's Bullish Bet on TSMC
Analysts remain overwhelmingly bullish on TSM stock, with a solid “Strong Buy” consensus rating, reflecting strong confidence in its growth trajectory. Out of the 12 analysts with coverage, nine recommend a “Strong Buy,” one advises a “Moderate Buy,” and two analysts maintain a “Hold” rating.
Based on Wednesday’s closing price of $238.72, the mean price target of $265.75 suggests that the stock could rally as much as 11.3%. Meanwhile, the $290 Street-high target, set by Bank of America in July, indicates that the stock can rally as much as 21.4% from current levels.
