Taiwan Semiconductor Manufacturing Company Limited (TSM): A Bull Case Theory

We came across a bullish thesis on Taiwan Semiconductor Manufacturing Company Limited on LongYield’s Substack. In this article, we will summarize the bulls’ thesis on TSM. Taiwan Semiconductor Manufacturing Company Limited's share was trading at $245.60 as of July 17^th. TSM’s trailing and forward P/E were 28.95 and 25.84 respectively according to Yahoo Finance.

Taiwan Semiconductor Manufacturing Company (TSM), the world’s largest contract chipmaker, reported a strong Q2 2025, reinforcing its leadership in the AI-driven semiconductor upcycle. Revenue rose to US$30.1 billion, up 17.8% sequentially in USD terms, driven by advanced nodes like 3nm and 5nm, while EPS surged 60.7% YOY to NT$15.36.

Gross margin held at 58.6% despite forex headwinds, as mid-90s capacity utilization and cost efficiencies offset overseas fab dilution. Management raised full-year revenue growth guidance to around 30% in USD on sustained AI and high-performance computing (HPC) demand, though it flagged Q4 caution on tariffs and macro risks.

Advanced technologies accounted for 74% of wafer revenue, with 3nm and 5nm driving the mix, while HPC dominated with 60% of revenue, supported by sovereign AI projects and edge AI development. The company’s strategic expansion continues with US$165 billion in U.S. fabs, N2 node production in H2 2025, and accelerated advanced packaging to meet AI demand. Shares rose 4% post-earnings, pushing TSM’s market cap toward US$1 trillion, as analysts cited the results as a bellwether for AI momentum.

Challenges include forex volatility, overseas fab dilution, geopolitical tensions, and packaging bottlenecks, but TSM’s scale and technology leadership underpin resilience. With 30% growth and AI tailwinds, TSM’s forward P/E of 24–25 reflects a reasonable premium, and institutional sentiment remains positive with 10–15% upside. For investors, the quarter underscores TSM’s pivotal role in AI supply chains and global chip dynamics, with upcoming N2 ramps, Q4 execution, and tariff impacts as key watchpoints amid a structurally supportive demand environment.

Previously we covered a bullish thesis on Taiwan Semiconductor Manufacturing Company Limited (TSM) by Oguz Erkan in May 2025, which highlighted TSM’s dominance in advanced chip manufacturing and strong AI-driven growth prospects. The company’s stock price has appreciated by approximately 27.92% since our coverage, as the thesis played out. The thesis still stands given the structural AI demand. LongYield shares a similar view but emphasizes Q2 results and raised guidance.

Taiwan Semiconductor Manufacturing Company Limited is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 187 hedge fund portfolios held TSM at the end of the first quarter which was 186 in the previous quarter. While we acknowledge the potential of TSM as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.