Is TSM's Global Fab Push a Wise Expansion Move or a Costly Overreach?

Taiwan Semiconductor Manufacturing Company TSM, also known as TSMC, is aggressively expanding its manufacturing facilities beyond Taiwan. The contract chipmaker is building new fabs across the United States, Japan and Germany.

The move will help the company meet the growing demand for artificial intelligence (AI) and advanced computing chips. The strategy will also aid TSMC in building a diversified semiconductor supply chain and hedge against geopolitical tensions that could disrupt its supply chain.

However, overseas fabs are more expensive to operate. Taiwan Semiconductor is estimating a near-term margin dilution of around 2%, which could further expand to 3-4% as production scales. Despite these pressures, TSMC’s gross margin expanded 170 basis points year over year to 59.5% in the third quarter of 2025, showing its ability to absorb rising costs while sustaining profitability.

Taiwan Semiconductor is betting that scale, automation and government incentives will eventually close the cost gap. The company believes that the investment will pay off as global customers seek reliable, regionally diversified suppliers for advanced nodes like 2nm and A16.

Taiwan Semiconductor’s revenues grew 40.8% year over year to $33.1 billion in the third quarter. Analysts believe the momentum will continue in the years ahead, considering the company’s global expansion strategy and rising demand for AI and advanced computing chips. The Zacks Consensus Estimate for 2025 and 2026 revenues indicates year-over-year growth of 33.8% and 20.6%, respectively.

How Rivals Stack Up Against TSMC in the AI Chip Making Race

Intel INTC and GlobalFoundries GFS are also expanding their presence in AI chip manufacturing.

Intel is investing heavily in its foundry business, aiming to produce advanced chips. The company is currently focusing on its 18A process, which signifies 1.8nm chips. Intel’s 18A process is claimed to have higher performance and efficiency, which will help the company better compete with Taiwan Semiconductor’s upcoming N2 chips.

GlobalFoundries focuses more on mature nodes. However, the company is witnessing some AI-related demand, especially in edge computing and embedded AI. GlobalFoundries is working to expand capacity in the United States and Europe to attract customers looking for supply-chain flexibility.

TSM’s Share Price Performance, Valuation and Estimates

Shares of Taiwan Semiconductor have risen around 47.2% year to date compared with the Zacks Computer and Technology sector’s gain of 23%.

Taiwan Semiconductor YTD Price Return Performance

From a valuation standpoint, TSM trades at a forward price-to-earnings ratio of 25.53, lower than the sector’s average of 28.98.

Taiwan Semiconductor Forward 12-Month P/E Ratio

The Zacks Consensus Estimate for Taiwan Semiconductor’s 2025 and 2026 earnings implies a year-over-year increase of 44.9% and 20.4%, respectively. Estimates for 2025 and 2026 have been revised upward in the past seven days.

Taiwan Semiconductor currently carries a Zacks Rank #2 (Buy). 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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