TSM Soars 18% in a Month: Should You Buy, Sell or Hold the Stock?

Taiwan Semiconductor Manufacturing Company TSM, also known as TSMC, shares have rallied 18.2% over the past month, outperforming the Zacks Computer and Technology sector’s gain of 6.3%.

TSM stock has also outperformed major semiconductor companies, including NVIDIA NVDA, Advanced Micro Devices AMD and Broadcom AVGO. Shares of NVIDIA and Advanced Micro Devices have risen 11.5% and 8.8%, respectively, while Broadcom stock has declined 2.1% over the past month.

TSM One-Month Price Return Performance

At last Friday’s closing price of $292.19, Taiwan Semiconductor stock is trading near its 52-week high of $296.72. Given this, investors might be wondering whether to buy, sell or hold the stock right now.

AI Boom: A Multi-Year Growth Catalyst for TSM

Taiwan Semiconductor continues to lead the global chip foundry market. Its scale and technology make it the first choice for companies driving the AI boom. NVIDIA, Marvell and Broadcom all count on TSMC to build advanced GPUs and AI accelerators.

AI-related chip sales have become a major driver. 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. Management expects AI revenues to double again in 2025 and grow 40% annually over the next five years. That makes TSMC central to the AI supply chain.

To keep up with the growing demand for AI chips, Taiwan Semiconductor is spending aggressively. 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 TSMC 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.

Taiwan Semiconductor Manufacturing Company Ltd. Price, Consensus and EPS Surprise

Taiwan Semiconductor Manufacturing Company Ltd. price-consensus-eps-surprise-chart | Taiwan Semiconductor Manufacturing Company Ltd. Quote

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-year 2025 revenues is pegged at $31.84 billion and $123.35 billion, respectively.

TSMC’s Valuation Still Looks Attractive

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 26.99, which is lower than the sector average of 29.4. This discount adds to the appeal for long-term investors.

TSM Forward 12-Month P/E Multiple

Compared with other major semiconductor players, Taiwan Semiconductor has a lower P/E ratio than Broadcom, NVIDIA and Advanced Micro Devices. Currently, Broadcom, NVIDIA and Advanced Micro Devices trade at P/E multiples of 37.96, 33.30 and 30.29, respectively.

TSM’s Near-Term Challenges Warrant a Cautious Approach

Despite its strengths, Taiwan Semiconductor witnesses near-term hurdles. 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, including weakness across the consumer end market, global expansion pressures and 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.

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

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