Taiwan Semiconductor Manufacturing Company (TSMC) has seen a remarkable $420 billion surge this year, bolstered by robust quarterly earnings driven by the ongoing AI investment boom, which continues to exceed expectations. Analysts predict a 29% rise in second-quarter net income for the world's largest contract chipmaker.
Similar to Nvidia, TSMC has become a top choice among investors betting on AI, with few competitors capable of matching its advanced technology. This positions TSMC strongly to increase prices for its cutting-edge chips amid growing demand. Analysts have been revising their valuations and price targets upward, reflecting the company's surge to achieve a market capitalization of $1 trillion in the US earlier this week.
As the exclusive supplier of Nvidia and Apple's cutting-edge chips, TSMC had initially projected full-year revenue growth in the low-to-mid 20 percent range. However, this outlook is now viewed as overly conservative, particularly following its strong sales performance in the June quarter and robust earnings reported by competitors like Samsung Electronics and major customer Broadcom. TSMC noted a 40 percent increase in second-quarter sales, surpassing the average forecast of a 36 percent rise.
At the beginning of the year, TSMC's Taiwan-listed stock was valued at 13 times its 2025 price-to-earnings forecast. Within six months, this multiple has surged to 21 times, signaling investor confidence that TSMC's enhanced profit margins will drive further increases, according to analysts. “The acceleration of earnings growth should drive the re-rating of valuation,” said Kevin Wang, an analyst at Mizuho Securities Asia, who raised his target price on the Taiwan-listed stock by 17 percent this month. “The margin improvement could drive earnings to grow 25 per cent or even 30 per cent, so the valuation could also expand to at least 25 times”.
Investors will closely analyze TSMC's remarks during the earnings call for insights into the chip market's recovery and trends in AI demand. Orders for AI chips have compensated for sluggish smartphone sales, which are just beginning to rebound from a decline. Increased demand for high-end smartphones and upgrades in high-performance computing could prompt higher prices for advanced semiconductors.
However, there are indications that some investors are becoming concerned about its valuation. Foreign investors have been net sellers of TSMC shares for five consecutive sessions, based on data from the Taiwan Stock Exchange. Bloomberg calculations show that its market capitalization now surpasses the total value of all Latin American companies on MSCI's emerging markets benchmark tracked by millions of US dollars in global funds. “Right now, everything is in shortage along the AI supply chain”, said Robert Cheng, a Taipei-based analyst at Bank of America. “Taiwan semiconductor stocks’ valuation is not high. Share prices have gone up a lot, but they have earnings to support”.