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Taiwan Semiconductor Stock Soars 18% YTD: Time to Hold or Book Profit?
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Key Takeaways
{\"0\":\"TSM has gained 17.5% YTD, outperforming peers and the broader Computer and Technology sector.\",\"1\":\"AI-driven demand boosted TSM\'s Q2 revenues by 44% and EPS by 61%, with 3nm and 5nm chips driving growth.\",\"2\":\"TSM plans up to $42B in 2025 capex, focusing 70% on advanced nodes to meet surging AI chip demand.\"}
Taiwan Semiconductor Manufacturing Company (TSM - Free Report) , also known as TSMC, has made a remarkable run so far this year despite high market volatility amid ongoing macroeconomic uncertainties and geopolitical issues. The stock has delivered a solid 17.7% gain year to date (YTD) and outperformed the broader Zacks Computer and Technology sector, which rose 10.9%.
Taiwan Semiconductor stock has also moved ahead of several chip peers, including ASML Holding (ASML - Free Report) , ON Semiconductor (ON - Free Report) and Marvell Technology (MRVL - Free Report) . Shares of ASML Holding, ON Semiconductor and Marvell Technology have fallen 0.5%, 25.1% and 30.6%, respectively, YTD.
YTD Price Return Performance
Image Source: Zacks Investment Research
This outperformance shows investors remain confident in Taiwan Semiconductor’s long-term story, even during a volatile market shaped by trade conflicts and geopolitical risks. We believe this momentum is grounded in strong fundamentals, and TSM’s long-term outlook justifies a hold position for now.
AI Boom: A Multi-Year Growth Catalyst for TSM
Taiwan Semiconductor continues to dominate the semiconductor foundry space. TSMC is known for its advanced production capabilities and has already moved into 3nm production, with 2nm coming soon. Its large scale allows it to handle rising AI chip demand better than most competitors. The ongoing artificial intelligence (AI) boom has placed TSMC at the center of a multi-year structural growth cycle.
Taiwan Semiconductor has established itself as the preferred manufacturing partner for AI accelerators, including graphics processing units (GPUs) and custom silicon developed by major players like NVIDIA, Marvell Technology and Broadcom.
In 2024, AI-related revenues tripled, making up a mid-teen percentage of Taiwan Semiconductor Manufacturing’s total revenues, and the momentum is far from over. TSMC expects AI-related sales to double again in 2025, with an impressive 40% compound annual growth rate over the next five years. This positions TSM as the undisputed backbone of AI-driven technological advancements.
To capitalize on the AI-driven growing demand for advanced chips, Taiwan Semiconductor is investing heavily in expanding production capabilities. The company is set to invest between $38 billion and $42 billion in capital expenditures in 2025, far outpacing its $29.8 billion investment in 2024. The bulk of this spending, around 70%, is focused on advanced manufacturing processes, ensuring TSM stays ahead of other chip manufacturing rivals.
TSMC’s Resilient Financial Performance
Taiwan Semiconductor’s latest earnings report highlights just how dominant the company remains. In the second quarter of 2025, TSM’s revenues surged 44% year over year to $30.07 billion, while EPS jumped 61% to $2.47. This growth was powered by the booming demand for its advanced 3nm and 5nm nodes, which now account for 58% of total wafer sales. Gross margins improved 540 basis points to 58.6%, reflecting better cost efficiencies.
Buoyed by strong demand for its 3nm and 5nm chips, Taiwan Semiconductor raised its revenue growth guidance for full-year 2025 to 30% from mid-20% projected earlier. For the third quarter, TSMC expects revenues in the range of $31.8-$33 billion, calling for a sequential increase of 6%-10%. The Zacks Consensus Estimate for third-quarter and full fiscal 2025 revenues is pegged at $32.38 billion and $118.11 billion, respectively.
Image Source: Zacks Investment Research
Favorable Valuation: A Reason to Hold TSM Stock
Despite a robust rally, Taiwan Semiconductor stock still looks reasonably priced. It trades at a forward 12-month price-to-earnings (P/E) multiple of 22.27, which is lower than the sector average of 27.47. This discount adds to the appeal for long-term investors.
Image Source: Zacks Investment Research
Compared with other major semiconductor players, Taiwan Semiconductor has a higher P/E ratio than ON Semiconductor but has a lower multiple than ASML Holding and Marvell Technology. At present, ASML Holding, ON Semiconductor and Marvell Technology trade at P/E multiples of 24.33, 16.92 and 24.01, respectively.
Near-Term Challenges Persist for TSMC
Despite its strengths, Taiwan Semiconductor faces near-term headwinds. Higher energy prices in Taiwan, following a 25% electricity hike in 2024, pose a considerable challenge, especially as advanced nodes demand greater power.
Softness in key markets like PCs and smartphones also dampens near-term prospects. These traditionally strong revenue drivers are projected to see only low single-digit growth in 2025, limiting Taiwan Semiconductor’s growth despite rising AI demand.
The company’s global expansion strategy adds further strain. New fabs in the United States (Arizona), Japan and Germany are vital for geopolitical risk mitigation, but they come with higher costs. These facilities are expected to drag down gross margins by 2-3 percentage points annually over the next three to five years due to higher labor and energy costs, along with lower utilization rates in the early stages.
Escalating geopolitical tensions, particularly U.S.-China relations, pose strategic risks. With significant revenue exposure to China, Taiwan Semiconductor is vulnerable to export restrictions, supply-chain disruptions or further regulatory pressure. These uncertainties could weigh on near-term performance.
Conclusion: Hold TSM Stock for Now
Taiwan Semiconductor remains a cornerstone of the semiconductor industry. Its unmatched capabilities in advanced chip manufacturing, strong exposure to AI demand and expanding capacity give it a solid long-term trajectory.
However, short-term headwinds, from rising costs and global expansion pressures to geopolitical friction, call for a more cautious stance. Given its valuation and growth backdrop, holding the stock makes the most sense right now.
Image: Bigstock
Taiwan Semiconductor Stock Soars 18% YTD: Time to Hold or Book Profit?
Key Takeaways
Taiwan Semiconductor Manufacturing Company (TSM - Free Report) , also known as TSMC, has made a remarkable run so far this year despite high market volatility amid ongoing macroeconomic uncertainties and geopolitical issues. The stock has delivered a solid 17.7% gain year to date (YTD) and outperformed the broader Zacks Computer and Technology sector, which rose 10.9%.
Taiwan Semiconductor stock has also moved ahead of several chip peers, including ASML Holding (ASML - Free Report) , ON Semiconductor (ON - Free Report) and Marvell Technology (MRVL - Free Report) . Shares of ASML Holding, ON Semiconductor and Marvell Technology have fallen 0.5%, 25.1% and 30.6%, respectively, YTD.
YTD Price Return Performance
Image Source: Zacks Investment Research
This outperformance shows investors remain confident in Taiwan Semiconductor’s long-term story, even during a volatile market shaped by trade conflicts and geopolitical risks. We believe this momentum is grounded in strong fundamentals, and TSM’s long-term outlook justifies a hold position for now.
AI Boom: A Multi-Year Growth Catalyst for TSM
Taiwan Semiconductor continues to dominate the semiconductor foundry space. TSMC is known for its advanced production capabilities and has already moved into 3nm production, with 2nm coming soon. Its large scale allows it to handle rising AI chip demand better than most competitors. The ongoing artificial intelligence (AI) boom has placed TSMC at the center of a multi-year structural growth cycle.
Taiwan Semiconductor has established itself as the preferred manufacturing partner for AI accelerators, including graphics processing units (GPUs) and custom silicon developed by major players like NVIDIA, Marvell Technology and Broadcom.
In 2024, AI-related revenues tripled, making up a mid-teen percentage of Taiwan Semiconductor Manufacturing’s total revenues, and the momentum is far from over. TSMC expects AI-related sales to double again in 2025, with an impressive 40% compound annual growth rate over the next five years. This positions TSM as the undisputed backbone of AI-driven technological advancements.
To capitalize on the AI-driven growing demand for advanced chips, Taiwan Semiconductor is investing heavily in expanding production capabilities. The company is set to invest between $38 billion and $42 billion in capital expenditures in 2025, far outpacing its $29.8 billion investment in 2024. The bulk of this spending, around 70%, is focused on advanced manufacturing processes, ensuring TSM stays ahead of other chip manufacturing rivals.
TSMC’s Resilient Financial Performance
Taiwan Semiconductor’s latest earnings report highlights just how dominant the company remains. In the second quarter of 2025, TSM’s revenues surged 44% year over year to $30.07 billion, while EPS jumped 61% to $2.47. This growth was powered by the booming demand for its advanced 3nm and 5nm nodes, which now account for 58% of total wafer sales. Gross margins improved 540 basis points to 58.6%, reflecting better cost efficiencies.
Buoyed by strong demand for its 3nm and 5nm chips, Taiwan Semiconductor raised its revenue growth guidance for full-year 2025 to 30% from mid-20% projected earlier. For the third quarter, TSMC expects revenues in the range of $31.8-$33 billion, calling for a sequential increase of 6%-10%. The Zacks Consensus Estimate for third-quarter and full fiscal 2025 revenues is pegged at $32.38 billion and $118.11 billion, respectively.
Image Source: Zacks Investment Research
Favorable Valuation: A Reason to Hold TSM Stock
Despite a robust rally, Taiwan Semiconductor stock still looks reasonably priced. It trades at a forward 12-month price-to-earnings (P/E) multiple of 22.27, which is lower than the sector average of 27.47. This discount adds to the appeal for long-term investors.
Image Source: Zacks Investment Research
Compared with other major semiconductor players, Taiwan Semiconductor has a higher P/E ratio than ON Semiconductor but has a lower multiple than ASML Holding and Marvell Technology. At present, ASML Holding, ON Semiconductor and Marvell Technology trade at P/E multiples of 24.33, 16.92 and 24.01, respectively.
Near-Term Challenges Persist for TSMC
Despite its strengths, Taiwan Semiconductor faces near-term headwinds. Higher energy prices in Taiwan, following a 25% electricity hike in 2024, pose a considerable challenge, especially as advanced nodes demand greater power.
Softness in key markets like PCs and smartphones also dampens near-term prospects. These traditionally strong revenue drivers are projected to see only low single-digit growth in 2025, limiting Taiwan Semiconductor’s growth despite rising AI demand.
The company’s global expansion strategy adds further strain. New fabs in the United States (Arizona), Japan and Germany are vital for geopolitical risk mitigation, but they come with higher costs. These facilities are expected to drag down gross margins by 2-3 percentage points annually over the next three to five years due to higher labor and energy costs, along with lower utilization rates in the early stages.
Escalating geopolitical tensions, particularly U.S.-China relations, pose strategic risks. With significant revenue exposure to China, Taiwan Semiconductor is vulnerable to export restrictions, supply-chain disruptions or further regulatory pressure. These uncertainties could weigh on near-term performance.
Conclusion: Hold TSM Stock for Now
Taiwan Semiconductor remains a cornerstone of the semiconductor industry. Its unmatched capabilities in advanced chip manufacturing, strong exposure to AI demand and expanding capacity give it a solid long-term trajectory.
However, short-term headwinds, from rising costs and global expansion pressures to geopolitical friction, call for a more cautious stance. Given its valuation and growth backdrop, holding the stock makes the most sense right now.
Taiwan Semiconductor carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.