Taiwan Semiconductor Manufacturing Company Limited (TSM) Widens Its Lead as AI Fuels Margin Expansion

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), or TSMC, is among Goldman Sachs’ top semiconductor stock picks. On January 16, Morgan Stanley lifted its price target on Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) to NT$2,088, a 5% increase. The investment bank also reiterated the stock as a top pick after the company reported strong quarterly results.

Morgan Stanley stated that its decision was driven by upside to gross margins and stronger earnings visibility. In other words, the analysts see continued profitability improvements and clearer future earnings prospects compared with previous expectations.

TSMC released its Q4 2025 earnings on January 15, where it posted a quarterly gross margin of 62.3%, significantly above both the company’s guidance and general market expectations. And for Q1 2026, the company guided gross margins of 63-65%. In light of this, Morgan Stanley noted that TSMC’s current margins already run well above the prior 53% level. And as such, the company’s guidance suggests structural improvements in profitability supported by pricing actions, productivity gains, and a higher share of AI-related revenue.

Meanwhile, Bernstein SocGen Group reiterated its Outperform rating on TSMC on January 16. The lead analyst Mark Li, also kept the price target at $330. Li cited TSMC’s Q4 2025 results, which he described as a strong beat against already high market hopes. And key to his optimism about TSMC is the company’s updated growth forecasts. Specifically, TSMC lifted its AI revenue CAGR to mid-to-high 50% for the 2024-2029 period.

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the world’s largest semiconductor foundry. It manufactures integrated circuits for global chip designers, producing advanced nodes used in applications such as artificial intelligence, cloud computing, mobile devices, and automotive electronics.

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.

READ NEXT: Top 10 Materials Stocks to Buy According to Analysts and 10 Best Organic Food and Farming Stocks to Buy Now.

Disclosure: None. This article is originally published at Insider Monkey.