Taiwan Semiconductor to Report Q4 Earnings: How to Play the Stock?

Taiwan Semiconductor Manufacturing Company Ltd. TSM is scheduled to report fourth-quarter 2025 results before the market opens on Jan. 15.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $2.76 per share, implying a 23.2% increase from the year-ago quarter’s reported number. The estimate has been revised upward by 4 cents over the past seven days.

Taiwan Semiconductor expects revenues between $32.2 billion and $33.4 billion. The Zacks Consensus Estimate is pegged at $32.63 billion, indicating a rise of 21.4% 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 6.3%.

Earnings Whispers for Taiwan Semiconductor Stock

Our proven model does not conclusively predict an earnings beat for TSM this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Though Taiwan Semiconductor has an Earnings ESP of +7.08% at present, it carries a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Factors Likely to Influence TSM’s Q4 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 fourth 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 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. Geopolitical tensions, particularly between the United States and China, are anticipated to have hurt the company’s overall revenue growth in the to-be-reported quarter.

TSM’s Stock Price Performance & Valuation

Taiwan Semiconductor shares have appreciated 60.7% over the past year, outperforming the Zacks Computer and Technology sector’s rise of 29.8%. Compared to other major players in the semiconductor space, TSM stock has outperformed Broadcom Inc. AVGO, NVIDIA NVDA and Marvell Technology MRVL. Over the past year, shares of Broadcom and NVIDIA have soared 53.1% and 38.8%, respectively, while Marvell Technology shares have declined 27.7%.

Taiwan Semiconductor One-Year 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 premium, with a forward 12-month P/E of 27.88X compared with the sector’s 26.38X.

Taiwan Semiconductor Forward 12-Month P/E Ration

Compared with other major semiconductor players, Taiwan Semiconductor has a lower P/E multiple than Broadcom, but has a higher multiple than NVIDIA and Marvell Technology. At present, Broadcom, NVIDIA and Marvell Technology trade at forward 12-month P/E multiples of 32.31, 26.05 and 23.48, respectively.

Investment Thesis for TSM Stock

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 graphics processing units (GPUs) and AI accelerators.

AI-related chip sales have become a major driver. Though the actual figures will be known from the company’s upcoming fourth-quarter 2025 results, the contribution of AI-related chip sales is anticipated to reach approximately 30% of total revenues in 2025, up from mid-teens percentage in 2024. Management had also previously expected that AI revenues would 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 had previously projected to invest between $40 billion and $42 billion in capital expenditures in 2025, far outpacing its $29.8 billion investment in 2024. The bulk of this spending, approximately 70%, is focused on advanced manufacturing processes, ensuring TSMC remains ahead of other chip manufacturing rivals.

Despite its strengths, Taiwan Semiconductor witnesses near-term hurdles. Escalating geopolitical tensions, particularly U.S.-China relations, pose strategic risks. With significant revenue exposure to China, TSMC is vulnerable to export restrictions, supply-chain disruptions or further regulatory pressure. These uncertainties could weigh on near-term performance.

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.

Conclusion: Stay Away From 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 geopolitical issues and expected pressure on gross margin due to global expansion measures, call for a more cautious stance. Given its premium valuation, it is wise to stay away from investing in the stock for now.

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

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