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

We came across a bullish thesis on Taiwan Semiconductor Manufacturing Company Limited on Long-term Investing’s Substack by Sanjiv. In this article, we will summarize the bulls’ thesis on TSM. Taiwan Semiconductor Manufacturing Company Limited's share was trading at $330.56 as of January 30th. TSM’s trailing and forward P/E were 31.51 and 25.32 respectively according to Yahoo Finance.

Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s leading contract chipmaker and the dominant producer of the most advanced chips, serving high-profile clients such as Nvidia, AMD, Apple, Qualcomm, and Broadcom. The AI-driven boom has created unprecedented demand for these chips, positioning TSMC as a critical supplier in the global technology ecosystem.

Its high-performance computing (HPC) segment now accounts for 55% of revenue, up from 34% 18 months ago, reflecting the secular and resilient demand from hyperscalers like Microsoft, Amazon, Meta, and Oracle, which contrasts with the cyclical consumer markets. TSMC’s 4Q 2025 results highlighted a 35% increase in profit, driven by strong double-digit revenue growth and expanding gross margins, which reached 62.3%, underscoring the company’s quasi-monopolistic position in advanced semiconductor manufacturing.

TSMC is expanding globally, with fabs operational or under construction in the U.S., Japan, and Germany, supported by government subsidies but facing higher costs and initial yield inefficiencies outside Taiwan. Despite this, margins continued to rise in 2025, offset by increased pricing power and capacity utilization.

The company plans a capital expenditure of $52–56 billion in 2026 to support the rollout of 2nm technologies, which will initially dilute margins but strengthen long-term production capabilities. Over the next five years, TSMC expects overall revenue growth of 25% CAGR and AI accelerator revenue to grow mid-to-high 50% CAGR, supported by its technology differentiation and global leadership in 5G, AI, and HPC megatrends.

While high capex and depreciation pressure free cash flow, TSMC maintains robust operating economics, with strong margins, net profit, and cash flow growth. Trading at roughly 26x forward earnings with ROE of 32–35%, TSMC presents a compelling high-growth investment, benefiting from secular AI-driven demand, global expansion, and a structurally improving industry outlook.

Previously, we covered a bullish thesis on Taiwan Semiconductor Manufacturing Company Limited (TSM) by Oguz Erkan in May 2025, which highlighted TSMC’s dominance in advanced chip manufacturing, strong financials, and growing AI demand as key drivers for its undervaluation. TSM’s stock price has appreciated by approximately 72.18% since our coverage due to AI demand, robust earnings growth and sustainable fundamentals. Sanjiv shares a similar bullish view but emphasizes TSMC’s global fab expansion, AI-driven revenue acceleration, and rollout of 2nm technology as key long-term catalysts.

Taiwan Semiconductor Manufacturing Company Limited is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 194 hedge fund portfolios held TSM at the end of the third quarter which was 187 in the previous quarter. While we acknowledge the risk and potential of TSM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TSM and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.