TSM vs. GFS: Which Semiconductor Stock is Poised to Lead in 2025?

Taiwan Semiconductor Manufacturing Company TSM and GlobalFoundries GFS are two of the most prominent players in the global semiconductor foundry space, but they offer very different propositions. TSM leads in cutting-edge chip manufacturing with a dominant market share, while GFS targets differentiated processes and specialty technologies.

With 2025 shaping up as a pivotal year for the semiconductor industry, which foundry stock offers a more compelling investment option today? Let’s find out.

The Case for TSM Stock

Taiwan Semiconductor Manufacturing continues to dominate the semiconductor foundry space with its technological superiority and production scale. The company has started 2025 on a strong note by reporting overwhelming first-quarter results, wherein revenues surged 35% year over year to $25.53 billion, while net income jumped 53% to nearly $11 billion. This growth was driven by explosive demand for its 3nm and 5nm nodes, which together contributed nearly 58% of total wafer revenues.

The ongoing artificial intelligence (AI) boom has placed Taiwan Semiconductor at the center of a multi-year structural growth cycle. The company has established itself as the preferred manufacturing partner for AI accelerators, including graphics processing units (GPUs) and custom silicon developed by major players like NVIDIA, Advanced Micro Devicesand Broadcom.

In 2024, AI-related revenues tripled, making up a mid-teen percentage of Taiwan Semiconductor Manufacturing’s total revenues, and the momentum is far from over. The company expects AI-related sales to double again in 2025, with an impressive 40% compound annual growth rate over the next five years. This positions TSM as the undisputed backbone of AI-driven technological advancements.

Taiwan Semiconductor Manufacturing is not only growing but also scaling at an unprecedented pace to capitalize on the AI-driven growing demand for advanced chips. 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 TSM stays ahead of the curve.

However, challenges do linger. Taiwan Semiconductor Manufacturing’s heavy concentration in Taiwan continues to spark geopolitical concerns amid escalating U.S.-China tensions. With significant revenue exposure to China, export restrictions and supply-chain disruptions could pressure its operations. Softness in key markets like PCs and smartphones also dampens near-term prospects. Additionally, rising operational costs due to higher energy prices in Taiwan, following a 25% electricity hike in 2024, could undermine profit growth.

The Case for GFS Stock

GlobalFoundries has carved out a niche by focusing on differentiated and mature nodes rather than competing directly with Taiwan Semiconductor Manufacturing on cutting-edge technologies. Its business model revolves around manufacturing chips that prioritize power efficiency, reliability and customization, making it a favorite among automotive, industrial and Internet of Things clients. This strategy has allowed GFS to remain relevant, even as competitors race toward sub-3nm nodes.

One of GlobalFoundries’ notable advantages is its geographical positioning. Its manufacturing footprint in the United States and Europe positions it well as Western countries push for semiconductor sovereignty. Expansions in New York and a potential boost from the CHIPS Act could enhance its long-term competitiveness.

Additionally, GlobalFoundries has made strong progress in winning long-term supply agreements with customers like General Motors and NXP Semiconductors, which boosts revenue visibility and de-risks its top line.

Nonetheless, GlobalFoundries’ financial performance has been relatively subdued. In 2024, revenue growth has been flat to slightly negative amid weaker demand from the communications sector and inventory corrections across the industrial and consumer applications markets. In the fourth quarter of 2024, the company’s revenues declined 1% year over year to $1.83 billion.

Operating margins have also come under pressure due to higher input costs and limited pricing power compared to top-tier foundries. Non-IFRS operating profit plunged 26% year over year to $285 million. While its exposure to automotive and industrial applications provides diversification, these segments are not growing at the explosive pace seen in AI and high-performance computing.

How Do Estimates Compare for TSM & GFS?

The Zacks Consensus Estimate for Taiwan Semiconductor Manufacturing’s 2025 sales and EPS implies year-over-year growth of 24.7% and 28.8%, respectively. EPS estimates for the second quarter and full-year 2025 have been trending northward over the past seven days.

Taiwan Semiconductor Manufacturing Company Ltd. Stock Price and Consensus

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

The Zacks Consensus Estimate for GlobalFoundries’ 2025 sales and EPS implies a year-over-year increase of 3% and 7.1%, respectively. EPS estimates for 2025 have been revised downward over the past seven days.

Valuation: TSM is Cheaper Than GFS

Valuation-wise, both Taiwan Semiconductor Manufacturing and GlobalFoundries are overvalued, as suggested by the Zacks Value Score of C.

However, in terms of forward 12-month Price/Earnings, TSM shares are trading at 15.91X, slightly lower than GFS’ 16.93X. Considering Taiwan Semiconductor Manufacturing’s high growth expectations and improving profitability, the stock seems to be way cheaper than GlobalFoundries.

TSM vs. GFS Forward 12-Month P/E Ratio

TSM: A Better Bet Than GFS

While both Taiwan Semiconductor Manufacturing and GlobalFoundries offer different strengths in the foundry space, TSM stands out as the better investment option for now. TSM’s technological leadership and superior financial performance provide a more compelling value proposition for investors looking to benefit from AI-driven semiconductor growth. GlobalFoundries, while strategically positioned in specialized markets, lacks the scale and profitability.

Currently, Taiwan Semiconductor Manufacturing has a Zacks Rank #3 (Hold), making the stock a stronger pick than GlobalFoundries, which has a Zacks Rank #4 (Sell).

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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