TSMC Stock: Global Tech’s Most Critical Asset At A Discount

Taiwan Semiconductor Manufacturing (NYSE: TSM) has been one of the quiet winners of the AI revolution. Despite being the backbone of the world’s most advanced chip manufacturing supply chain, TSMC’s stock is up only about 18% year-to-date – well below U.S. based chip players such as AMD stock (NASDAQ:AMD), which is up 38%, Nvidia stock (NASDAQ:NVDA) which is up 31% and struggling Intel (NASDAQ:INTC), which has gained close to 20%. That relative underperformance of the stock looks more striking when you consider the company’s strong growth trajectory, expanding profit margins, and a valuation that’s more reasonable than most of its rivals.  TSMC’s fabs aren’t just factories. They’re among the most strategically important assets on the planet, manufacturing the processors powering iPhones, EVs, AI data centers, and virtually every cutting-edge device and investors can actually own a piece of them. At today’s multiples, that slice of global infrastructure doesn’t look too expensive, either.

Image by Paul Diaconu from Pixabay

At The Heart Of AI Chip Making

TSMC’s investment case rests on its dominant lead in advanced chip making. As the world’s largest semiconductor foundry, it manufactures the lion’s share of the world’s most advanced chips In Q2 2025, revenues jumped 44% year-over-year to $30.07 billion, with high-performance computing driving 60% of the sales mix and smartphone chips another 27%. Overall, two-thirds of the world’s semiconductors – and an even greater share of AI-optimized chips roll off TSMC’s lines. That dominance comes from the company’s leadership in advanced process technology. The company already rules the 3nm and 5nm nodes and is pushing into 2nm “gate-all-around” this year, cementing its lead.

Advanced nodes (3nm, 5nm, 7nm) make up nearly 74% of TSMC’s output. In AI, its position looks even more unassailable. TSMC’s 3nm and soon-to-launch 2nm nodes, combined with state-of-the-art packaging technologies essential for AI accelerators, give it a technological moat rivals can’t match. Its massive scale and unmatched reliability have made it the default choice for every major AI chipmaker – from Nvidia and AMD to hyperscalers designing custom silicon. While the likes of Intel have made progress in moving toward more advanced nodes such as the 18A process, they are typically far behind TSMC in terms of yield rates and efficiency. The 2nm Race: Intel’s 18A Faces Uphill Task Against TSMC

Compelling Financials

The growth outlook is even more compelling. TSMC projects overall revenue growth of 30% in 2025, while its AI-related business alone is expected to compound at 40% annually in the near-future from the 2024 base. Industry forecasts peg AI infrastructure spend at $6.7 trillion by 2030. With TSMC supplying the advanced chips that power AI systems, the company has a long growth runway ahead. There are policy tailwinds, too. TSMC has a reprieve from President Trump’s 100% chip tariffs as it has been expanding its U.S. presence.

New fabs in the U.S. and Japan are also designed to mitigate geopolitical concentration risk in Taiwan. The company’s balance sheet is equally strong, with $86 billion in cash and marketable securities versus about $29 billion in long-term debt. Margins also highlight the strength of the company’s business model. Gross margins hover near 59%, while operating margins expanded to almost 50% over the last quarter – up a solid 700 basis points from a year ago. This reflects pricing power, efficiency, and its ability to out-execute rivals like Intel and Samsung, who continue to face headwinds with next-generation node transitions.

Valuation: A Discounted AI Play

Still, at a forward  price to earnings multiple of about 24x, TSMC looks far cheaper than most U.S. chip design companies, particularly considering its unrivaled technology, scale, and structural exposure to AI. With strong growth, resilient margins, and a valuation that hasn’t yet caught up to its peers, TSMC may be one of the most underappreciated ways to play the AI chip boom. To be sure, no story is risk-free. The most obvious overhang is geopolitical: China – Taiwan tensions cast a long shadow over TSMC’s global dominance. While overseas fabs reduce concentration, they also raise costs. Another risk is that growth outside AI is somewhat disappointing. Apple, one of TSMC’s largest customers, has faced sluggish demand in recent quarters, and broader consumer electronics spending could weigh on non-AI segments. Rising capital expenditure requirements could also pressure free cash flow, even if margins stay strong.

While TSMC stock appears risky, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.