TSM Likely to Beat Q2 Earnings Estimates: Buy, Hold or Sell the Stock?

Taiwan Semiconductor Manufacturing Company Ltd. TSM is likely to beat expectations when it reports second-quarter 2025 results before the market opens on July 17.

The Zacks Consensus Estimate for second-quarter earnings is pegged at $2.37 per share, implying a 60.1% increase from the year-ago quarter’s reported number. The estimate has been revised 3 cents upward over the past seven days.

Taiwan Semiconductor expects revenues between $28.4 billion and $29.2 billion. The Zacks Consensus Estimate is pegged at $30.04 billion, indicating a rise of 44.3% from the year-ago quarter’s reported actuals.

Taiwan Semiconductor has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 6.9%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Earnings Whispers for Taiwan Semiconductor

Our proven model predicts an earnings beat for TSM this earnings season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate ($2.45 per share) and the Zacks Consensus Estimate ($2.37 per share), is +3.25%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Taiwan Semiconductor carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors to Consider Ahead of TSM’s Q2 Results

Taiwan Semiconductor continues to assert its dominance in the semiconductor space, benefiting from a robust industry rebound fueled by the growing prominence of artificial intelligence (AI). The surge in AI-driven applications (in manufacturing and end products) has been a significant catalyst for chipset manufacturers like TSM. The rise of data-centric technologies, especially cloud computing, the Internet of Things (IoT) and the metaverse, has increased the demand for semiconductors, contributing to the company’s business performance in the to-be-reported quarter.

Taiwan Semiconductor’s consistent investments in next-generation and specialty technologies are likely to have driven growth in the second quarter. Its leadership in 7nm and 3nm chip technologies has been instrumental, offering advanced capabilities to customers in high-demand industries. The 5nm process technology has also contributed to TSM’s wafer revenues, reflecting the solid market adoption of these smaller, more efficient chipsets. Taiwan Semiconductor's strategic focus on ramping up 3nm production while advancing its 2nm development positions it for continued leadership in the semiconductor space.

Taiwan Semiconductor's expansion into high-performance computing (HPC) and smartphone sectors is expected to have bolstered its performance in the to-be-reported quarter. The company’s innovative 3nm Fin Field-Effect Transistor (FinFET) technology, alongside its range of FinFET options (spanning 4nm, 5nm, 6nm and 7nm nodes), has become a key growth driver, particularly in HPC applications. TSM’s advanced FinFET technologies, such as the enhanced 3nm and plus variants of the 4nm and 5nm chips, have helped it maintain strong momentum in the smartphone market.

Taiwan Semiconductor's technological advancements are anticipated to have supported its expansion into automotive, IoT and digital consumer electronics. The adoption of TSM’s multi-project wafer processing service, which helps customers cut costs, is likely to have boosted the company’s top-line growth. This diversification across industries enhances TSM’s resilience and offers multiple revenue streams.

However, rising operational costs, especially from its overseas expansion into Arizona, Japan and Germany, are likely to have hurt Taiwan Semiconductor’s gross margin in the to-be-reported quarter. Also, higher electricity prices in Taiwan are anticipated to have negatively hurt its profitability in the second quarter.

TSM Stock Price Performance & Valuation

Taiwan Semiconductor shares have appreciated 16.7% year to date (YTD), outperforming the Zacks Computer and Technology sector’s rise of 7.4%.  However, compared to other major players in the semiconductor space, TSM stock has underperformed NVIDIA NVDA, Advanced Micro Devices AMD and Broadcom AVGO. YTD, shares of NVIDIA, Advanced Micro Devices and Broadcom have soared 22.8%, 21.2% and 18.3%, respectively.

YTD Price Return Performance

Now, let’s look at the value that Taiwan Semiconductor offers to its investors at the current levels. Currently, TSM is trading at a discount, with a forward 12-month P/E of 22.48X compared with the sector’s 27.39X.

TSM Forward 12-Month P/E Ratio

Taiwan Semiconductor also trades at a lower P/E multiple compared with NVIDIA’s 34.04X, Advanced Micro Devices’ 30.83X and Broadcom’s 35.29X.

Investment Thesis for TSM Stock

Taiwan Semiconductor sits at the center of the artificial intelligence (AI) revolution. As the world’s largest contract chipmaker, TSMC supplies cutting-edge chips to companies like NVIDIA, Advanced Micro Devices and Intel, all of which depend on TSMC’s ability to manufacture at advanced nodes.

In 2024, AI-related revenues tripled, making up a mid-teen percentage of Taiwan Semiconductor’s total revenues, and the momentum is far from over. The company expects AI-related sales to double again in 2025, with an impressive 40% compound annual growth rate over the next five years. This positions TSMC as the undisputed backbone of AI-driven technological advancements.

Taiwan Semiconductor is not only growing but also scaling at an unprecedented pace to capitalize on the AI-driven growing demand for advanced chips. 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 the curve. Taiwan Semiconductor’s sustained focus on investing in growth opportunities is likely to continue boosting its top and bottom lines.

Conclusion: Buy TSM Stock for Now

Taiwan Semiconductor remains a critical player in global chipmaking. Its dominance in advanced nodes, rising AI-related demand and aggressive investment in capacity position it well for the next decade. With an earnings beat likely in the second quarter and a valuation that still offers upside, now is the perfect time to buy TSM stock.

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This article originally published on Zacks Investment Research (zacks.com).

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