Last Update 17 Oct 25
Fair value Increased 1.31%1. Recent Financial Results & Guidance
Q3 2025 (latest quarter) highlights
- TSMC delivered a very strong quarter, driven by continued AI / HPC demand:
- Net profit: NT$ 452.3 billion (~US$14.8 billion), ~39 % year-over-year growth.
- Revenue: NT$989.9 billion, ~30 % YoY growth (in USD terms, revenue growth was ~41 %)
- TSMC raised its full-year 2025 revenue growth guidance to mid-30 % (USD terms), up from earlier ~30 %.
- Capital expenditure (CapEx) guidance remains high, with up to US$42 billion planned for 2025.
These results reinforce that TSMC is benefiting strongly from secular demand trends in AI, cloud computing, and high-performance computing (HPC).
Previous quarters & trends
- In Q1 2025, revenue was ~NT$ 839 billion (USD ~$25.5 billion), down ~3 % sequentially; gross margin dipped slightly to ~58.8 %.
- For Q2 2025, some reports (e.g. independent analysis) indicated revenue growth of ~38−44 % YoY, with net income growth even stronger (~60 %), driven by AI / HPC demand and favourable USD / NT$ dynamics.
- From its 2024 annual reports, advanced nodes (7 nm and beyond) already accounted for a significant share (69 % of wafer revenue).
Risks/headwinds noted by analysts
- Building new fabs in the U.S., Japan, and Europe introduces cost pressures. Some of the margin dilution is expected, especially in earlier ramp phases.
- Geopolitical / trade risk, especially around export controls and U.S.–China tensions.
- As newer fabs in more expensive jurisdictions ramp, operating costs may rise relative to incumbents in Taiwan.
- Profitability in non-AI / legacy nodes may see more headwinds vs. the AI / HPC segment.
2. Implications for Valuation
Given these strong results and outlook, how might valuation move? Below are the key drivers and considerations.
Multiples relative to peers / historical
From financial data:
- TSMC currently trades at a trailing P/E of ~31.6× (based on available ratio data).
- Other metrics: P/S ~10.35×, P/B ~7.62×, EV/EBITDA ~14.33× (these are historical/ recent values).
- In commentary, some analysts note that valuation multiples are elevated relative to historical norms, though possibly justified by growth optimism.
Thus, there is a tension: robust growth/guidance pushes for a higher multiple, while higher risks and already elevated valuations limit further expansion.
3. Outlook & Verdict
Overall, TSMC’s latest results are very strong, especially driven by the AI / HPC tailwinds. Raising guidance is a positive signal, and the market has responded with optimism.
However, valuation expansion has limitations:
The market likely has already baked in a large part of this AI narrative.
Execution risks (in new investments, margin dilution, regulatory/geopolitical exposures) are real.
The sustainability of premium multiples depends on sustained growth and margin discipline over multiple quarters.
TSMC’s valuation has upside potential if it continues to deliver and manage its cost base well. But the margin of safety is narrower now compared to a few years ago, so downside risk is more acute if things slip.
1. The Foundry King: The Core of Modern Tech
- TSMC invented the dedicated foundry model in 1987 and today commands ~50% global market share, manufacturing chips for clients like Apple, Nvidia, AMD, Qualcomm, and others .
- Widely recognized as the industry bellwether, TSMC builds the most advanced semiconductors—on nodes like 3 nm, 5 nm, and forecasting mass production of 2 nm in late 2025.
2. Financial Muscle: AI Demand Supercharges Growth
- In Q2 FY2025, revenue hit US $30 B (+38.6% YoY), net income soared +60.7% to NT$398 billion (~US $12.8 B), gross margin ~58.6%, and operating margin ~49.6% .
- Q1 2025 revenue also climbed 41.6% YoY to NT$839 billion (~US $25.5 B), with earnings per ADR rising over 60% YoY to NT$13.94 (~US $2.12) .
- High margins—with gross margin 55–58% and net near 40%—reflect unparalleled efficiency in chip production.
3. AI & HPC: TSMC Is the AI Supply Backbone
- Approximately 60%+ of sales now come from high-performance computing (HPC) and AI-related chips, making TSMC the core engine of the AI era.
- Its customers remain hyperscalers like Nvidia, Apple, Amazon, and Microsoft—all reliant on TSMC for advanced process hubs.
4. Expansion Strategy & Geographic Diversification
- TSMC plans the largest expansion in its history, building at least 15 new fabs—including R&D and massive wafer plants—in Taiwan, the U.S., Japan, and Germany; capex in 2025 projected at US $38–42 B.
- The company is investing US $100+ B in U.S. facilities, partly in response to trade and tariff risk, but Taiwan remains the core R&D heart—the “silicon shield” .
5. A Strategic Pillar: Stability, Discipline, Sustainability
- TSMC is credit-rated AA‑ / Aa3—the strongest in its industry—and relies almost entirely on internal financing rather than relying on debt.
- It maintains sustainable dividends (never cut since inception), has disciplined M&A, and high return on equity (>25%) through the cycle.
- ESG credentials: rated AAA low-risk by Sustainalytics, included in FTSE4Good, ISS ESG “Prime,” and listed on the Clean 200 Index for Taiwan.
6. Key Risks to Watch
- Geopolitical exposure: U.S.–China trade friction could spark tariffs—recent warnings of up to 100% duty unless production shifts to U.S.—though Taiwan retains advanced tech control.
- Currency and margin pressure: NT dollar strength and overseas fab inefficiencies may trim margins slightly in future quarters.
- Customer concentration: Top clients make up a large portion of revenue—a risk if any hyperscaler reduces orders or builds in-house fabs.
Investment Thesis Summary
TSMC is the central pillar of the global semiconductor ecosystem, powering the AI revolution with unmatched scale, cutting-edge process technology, and disciplined execution. With record profits, dominant client base, and massive expansion underway—both in Taiwan and abroad—it stands as a low-risk way to own the AI infrastructure wave. Although geopolitical and trade risks loom, its moat, margins, and market position offer a rare combination of growth, profitability, and stability.
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Disclaimer
The user oscargarcia has a position in NYSE:TSM. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
