# Taiwan Semiconductor Manufacturing (TSM)

Sector: Semiconductor manufacturing

| Field | Value |
|---|---|
| Price | $412.61 |
| Fair value (Analysts) | $534.00 |
| Discount to fair value | 22.7% |
| Fair value uncertainty (Analysts) | Medium |
| Economic moat (Analysts) | Wide |
| LSEG analyst rating (1 strong buy to 5 strong sell) | 1.65 |
| Data as of | 2026-10-18 |
| Next earnings | 2027-01-15 (estimate) |

## In short

Strong AI demand and pricing can close the execution part of the gap, but the market will probably keep a discount for Taiwan-China risk.

## Themes and gap

- Themes: AI supplier (ai-supplier), China and geopolitics (china-geopolitics), Tariffs and trade (trade-tariffs)
- Gap type: Will probably not close (structural)
- Why: Strong results can close the execution part, but the market will probably keep a discount for Taiwan-China risk that TSMC cannot control.

## About

TSMC makes chips for other companies. It does not design its own chips. Customers like Nvidia, Apple, and AMD send TSMC their chip designs, and TSMC manufactures them. TSMC makes almost all of the world's most advanced chips, the kind used in AI processors and smartphones.

## Thesis

The market still prices TSMC like a plain contract manufacturer, not like the company that makes almost every advanced AI chip. This differs from how it prices Nvidia or Broadcom, even as TSMC's own pricing power keeps growing. Press reports say TSMC raised 2026 wafer prices and plans a further rise in 2027 for advanced nodes. TSMC does not publish its prices. For the gap to close, TSMC must keep turning its bigger capital budget into revenue at this year's pace. Its costly new fabs in Arizona and Japan must also ramp up without further delay, and their cost to gross margin must stay inside management's guidance. Investors want proof that demand outside AI, in phones and PCs, holds steady while this buildout continues. In October 2026, management said that higher component prices put pressure on these consumer markets. A separate, harder problem is the discount tied to Taiwan-China tension. This piece is unlikely to close soon, since it depends on politics outside TSMC's control. The next data point is TSMC's Q4 2026 report and its first 2027 guidance, expected in mid-January 2027. If AI demand and pricing keep beating expectations over the next two to four quarters, the execution part of the gap can close, even if the geopolitical discount lasts for years.

## Checkpoints

- Oct 15, 2026: Q3 2026 results: AI demand, margins and 2026 growth. Status: Failed. Watch: Revenue that meets the more than 40% 2026 growth target with stable gross margin passes; a lower growth target or margin pressure from overseas fabs fails. Outcome: Revenue growth beat the target, which management raised to about 44%, but gross margin fell to 66.4% from 67.7% in Q2 and the Q4 guide is lower again, partly because of overseas fab costs, so the margin was not stable.
- Jan 15, 2027 (estimate): Q4 2026 results and 2027 guidance. Status: Pending. Watch: 2027 guidance with strong revenue growth, gross margin near the Q4 2026 guide of 65% to 67% and confirmed higher wafer prices passes; weak guidance, a larger margin cost from N2 and overseas fabs, or customer pushback on prices fails.
- Q3 2027 (estimate): Second Arizona fab starts 3 nm volume production. Status: Pending. Watch: Volume production at the second Arizona fab in the third quarter of 2027, as management said in October 2026, with margin dilution inside guidance, passes; a delay or a larger margin hit than guided fails.

## Balance sheet

- Cash: NT$4,017.0B
- Debt: NT$1,031.6B
- Net cash: NT$2,985.4B
- Debt due within 12 months: NT$213.2B
- Ratings: S&P AA- (positive outlook), Moody's Aa3 (positive outlook)

TSMC has a large net cash position, and debt does not limit its choices: cash flow can pay for its record build-out and higher dividends. The main financial risk is the location of its plants in Taiwan, not its balance sheet. Debt is unsecured bonds plus a small amount of unsecured bank loans, and it does not include lease liabilities. The parent guarantees the overseas bonds of its subsidiaries TSMC Arizona and TSMC Global. Cash includes NT$395.1 billion of marketable financial instruments, and net cash was NT$2,985.4 billion at September 30, 2026. Debt due within 12 months increased to NT$213.2 billion, from NT$167.4 billion at June 30, 2026. In Q3 2026, operating cash flow of NT$919.8 billion paid for NT$443.2 billion of capital expenditure and NT$155.6 billion of cash dividends. Free cash flow was NT$476.6 billion. Other investing inflows of NT$198.7 billion in the same quarter came mainly from US Treasury Department investment tax credits. In the first nine months of 2026, TSMC paid NT$14.7 billion of interest, and operating income was NT$2,302.0 billion. Interest cover is not shown until the full Q3 2026 financial report gives the finance costs. S&P changed its outlook to positive on June 23, 2026, and Moody's changed its outlook to positive on August 28, 2026. Both outlooks were still positive on October 5, 2026.

As of 2026-09-30.

Sources:

- https://investor.tsmc.com/english/encrypt/files/encrypt_file/reports/2026-10/3a94d1034b9e6b22446b674f7aaf3d088a12a193/FS.pdf
- https://investor.tsmc.com/english/encrypt/files/encrypt_file/reports/2026-10/f83780000ddc0c3b48e57a87eab6814c4ab35058/3Q26%20ManagementReport.pdf
- https://www.sec.gov/Archives/edgar/data/1046179/000104617926000726/a3q26presentatione.htm
- https://www.sec.gov/Archives/edgar/data/1046179/000104617926000541/a2026q2consolidatedreport-.htm
- https://www.investing.com/news/stock-market-news/moodys-upgrades-tsmc-outlook-on-ai-demand-chip-leadership-93CH-4881185
- https://cbonds.com/news/3073651/
- https://investor.tsmc.com/english/credit-rating

## Recent events

- 2026-10-15: TSMC reported Q3 2026 results. Revenue was NT$1,494.2 billion, up 50.9% from a year earlier and up 17.6% from Q2. In US dollars, revenue was US$46.72 billion, up 41.2% from a year earlier and above the guidance of US$44.6-45.8 billion. Gross margin was 66.4%, down from 67.7% in Q2, mainly because of the first ramp-up of N2 production. Diluted EPS was NT$29.43, up 68.7%. The 2 nm node gave 8% of wafer revenue, and 7 nm and smaller nodes together gave 79%. High-performance computing gave 68% of revenue and smartphones gave 21%.
- 2026-10-15: For Q4 2026, TSMC guided revenue of US$52.3-54.3 billion, gross margin of 65% to 67% and operating margin of 56.5% to 58.5%. Management raised its 2026 revenue growth target to about 44% in US dollars, from slightly above 40%. It kept the 2026 capital budget at US$60-64 billion. It said that capital spending from 2026 to 2028 will be much higher than in the previous three years. Capital spending was US$40.64 billion in the first nine months of 2026.
- 2026-10-15: On the Q3 earnings call, CEO C.C. Wei said that AI demand is "extremely robust" and that TSMC sees no sign of a slowdown. He said that AI accelerator revenue will probably grow faster than TSMC's earlier forecast of a mid-to-high 50s percent yearly rate from 2024 to 2029. He also said that higher component prices put pressure on consumer and price-sensitive markets. TSMC expects the yearly capacity of its N2 family to more than double in 2027.
- 2026-10-15: On the same call, management said that construction of the second Arizona fab is complete and that TSMC now installs its tools. TSMC plans volume production there in the third quarter of 2027, a little earlier than its previous plan. The CFO said that the cost of the overseas fabs to gross margin will increase to 3% to 4% over the next few years. Wei said that TSMC has sent teams to Texas to study a new site. He also said that TSMC talks with a customer about its planned Terafab plant, and that TSMC must run any such fab.
- 2026-10-08: TSMC reported September 2026 revenue of NT$511.9 billion, up 55% from a year earlier and down 0.6% from August. Third-quarter revenue was about NT$1.49 trillion, up about 50% from a year earlier. Revenue for January to September was NT$3,898.7 billion, up 41%.
- 2026-10-07: Elon Musk said on X that his companies will build and run the Terafab plant, and that TSMC may at most sublease part of it. TSMC's US-listed shares fell from their record over the next three days, to $453.31 on October 9, 2026.
- 2026-10-03: On October 3, 2026, Elon Musk said on X that TSMC and his Terafab chip plant project were in "just discussions." This followed an October 2 newsletter report that TSMC was studying a role in Terafab. TSMC made no announcement. On October 5, 2026, TSMC's US-listed shares closed at a record high of $485.80.
- 2026-09-30: Reuters reported that TSMC is studying a new investment in Texas, on top of its Arizona plans. TSMC declined to comment.
- 2026-09-10: TSMC reported August 2026 revenue of about NT$514.8 billion, up 53% from a year earlier and up 10% from July. Year-to-date revenue through August was up more than 39% from a year earlier.
- 2026-08-11: TSMC's board approved a cash dividend of NT$7.0 per share for Q2 2026, to be paid on January 7, 2027, and capital appropriations of about US$29.4 billion. It also approved a joint venture with Sony Semiconductor Solutions to make smartphone image sensors in Kumamoto, Japan. Sony will control the venture, and TSMC plans to put in about 282 billion yen in cash. The venture expects to start volume production in 2029.
- 2026-07-21: Nikkei Asia reported that TSMC plans to raise wafer prices by 5% to 10% from January 2027, with an extra 10% to 15% charge on AI and high-performance orders above committed volumes. TSMC does not comment on prices.
- 2026-07-16: TSMC reported Q2 2026 results. Revenue was US$40.2 billion, up 34% from last year in US dollars and up 36% in Taiwan dollars. Gross margin was 67.7%.
- 2026-07-16: Management raised the full-year 2026 revenue growth target to slightly above 40% in US dollars, from more than 30%. It raised the 2026 capital spending budget to US$60-64 billion, from US$52-56 billion.
- 2026-07-16: TSMC announced another US$100 billion investment in Arizona. This raises its planned Arizona investment to US$265 billion, for ten fabs, two advanced packaging plants and a research center.

## Risks

- High: TSMC's near-term growth depends on AI chip demand staying strong. A slowdown from any major customer would hit TSMC's revenue growth quickly, since a small number of large customers drive much of its business. In 2025, the largest customer gave 19% of revenue, the second largest gave 17%, and the top ten gave 78%. Press reports name Nvidia and Apple as the two largest.
- Medium: Nearly all of TSMC's advanced chip production happens in Taiwan. Any disruption from geopolitical tension between Taiwan and China would be a major risk to the business.
- Medium: TSMC is spending a record amount on new factories, including plants in Arizona and Japan. If AI demand slows before this spending pays off, profit margins could fall.
- Low: TSMC's pricing power depends on chip designers accepting higher wafer prices. If AI chip demand cools, customers could push back harder on future price increases, or shift some orders to lower-cost capacity at rivals like Samsung or Intel Foundry.

## Links

- Page: https://picks.utilarium.app/company/TSM/
- History of changes: https://picks.utilarium.app/company/TSM/history/
- JSON with full history: https://picks.utilarium.app/data/company/TSM.json

> Picks is a personal record of stock picks. It gives information only, not financial, investment, tax or legal advice. Prices, fair values and ratings can be delayed or wrong; check the original source. Full disclaimer: /disclaimer/.