What’s Happening with Taiwan Semiconductor Stock?

In the past year, Taiwan Semiconductor Manufacturing Company (NYSE: TSM) has delivered one of the most remarkable rallies among global tech stocks, with its share price jumping roughly 65% as investors repositioned around artificial intelligence (AI) tailwinds and structural industry changes. What was once a cyclical semiconductor business has transformed, in the eyes of Wall Street, into a core infrastructure player for the next technology era. But what specifically explains this surge — and what might lie ahead for TSM stock?

If you seek an upside with less volatility than holding an individual stock like TSM, consider the High Quality Portfolio. It has comfortably outperformed its benchmark—a combination of the S&P 500, Russell, and S&P MidCap indexes—and has achieved returns exceeding 105% since its inception. 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. Separately, see – Alcoa’s 2x Run Explained

Photo by manseok_Kim on Pixabay

The Perfect Storm: AI, Advanced Nodes, and Record Profits

At the heart of TSMC’s meteoric rise is a surge in demand for AI chips and high-performance computing (HPC). In the third quarter of 2025, the company reported revenue of about $33.1 billion, up 40.8% year-over-year, while earnings per share jumped nearly 39%, driven by orders for advanced 3-nanometer and 5-nanometer technology that power AI accelerators and data center processors. Advanced nodes — defined as 7 nm and below — accounted for roughly three-quarters of wafer revenue, underscoring the economic premium on cutting-edge manufacturing.

These numbers weren’t outliers. Recent quarterly figures posted record revenue north of 1.05 trillion New Taiwan dollars (~$33.7 billion), with stronger-than-expected earnings pushing the ADR stock to fresh highs. Investors cheered not just the top-line beats but the clear signal of sustained AI demand across multiple customers.

This growth has anchored TSMC’s outlook. Management projects AI-related revenue to double in 2025 and maintain high compound annual growth rates through the latter part of the decade. Industry analysts commonly see mid-40% and higher growth trajectories for this segment, reflecting both the expansion of data center infrastructure and the proliferation of AI capabilities across enterprise and consumer markets.

Technology Leadership: A Moat That Wins

TSMC’s technological edge is not merely marketing hype — it’s quantifiable. As of 2025, over 70% of the company’s global foundry market share was tied to leading-edge nodes, with its 2-nanometer (N2) process slated for volume production in the second half of 2025 and next-generation processes (like 1.6 nm and beyond) on the roadmap. This technological leadership has allowed TSMC to maintain pricing power and strong margins versus competitors like Samsung and others attempting to catch up.

Advanced packaging technologies such as CoWoS (Chip-on-Wafer-on-Substrate), which integrates logic silicon with high-bandwidth memory, further differentiate TSMC’s offering. These platforms are especially critical for AI accelerator chips where performance per watt and interconnect density dictate overall system effectiveness. Demand for advanced packaging has been so strong that capacity was reported as being fully booked through 2026.

Diversification also helps. Beyond AI chips and HPC, TSMC produces processors for top smartphone makers (e.g., Apple), automotive microcontrollers, and IoT devices. While smartphones account for a meaningful share of revenue (around 30–35%), the rapid ascent of AI infrastructure spending has reshaped the company’s profit profile toward higher-growth segments.

Infrastructure Spending and Geopolitical Tailwinds

Investors have also applauded TSMC’s capital spending commitments. The company plans to significantly increase its capital expenditures, with $52–$56 billion planned in 2026 alone, up roughly 30% from 2025, channeling funds into cutting-edge fabs and capacity expansion in Taiwan, the United States (notably Arizona), Japan, and Germany.

This aggressive investment strategy has geopolitical backing. A recent U.S.–Taiwan trade agreement slashed tariffs on Taiwanese semiconductor products and secured $250 billion in Taiwanese investment in U.S. tech sectors, with TSMC as a key contributor. Such moves deepen supply chain resilience and align TSMC with broader national policy priorities in AI and semiconductor autonomy.

Risks, Valuation, and What Comes Next

Capital expenditure, while necessary for growth, exerts pressure on free cash flow and margins in the short run, particularly as fabs outside of Taiwan can be more expensive to operate. Geopolitical tensions — especially between China, Taiwan, and the U.S. — could also introduce supply chain risk or unexpected policy shifts.

From a valuation perspective, TSMC trades at a meaningful premium over historical norms, although that valuation reflects its unique role in advanced chipmaking and AI infrastructure. Should AI demand falter or semiconductor cycles re-enter a downtrend, stocks tightly tied to growth expectations could see volatility.

Looking ahead, the key questions for TSMC’s next chapter revolve around execution of its 2 nm and beyond roadmaps, continued growth in AI chip revenue, and how global capacity expansions bear fruit in actual shipments and customer commitments. If those fundamentals align with or exceed expectations, the company may well sustain its leadership and continue to justify its valuation.

See, investing in a single stock without comprehensive analysis can be risky. Consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

Invest with Trefis Market-Beating Portfolios

See all Trefis Price Estimates