Is It Too Late To Consider Taiwan Semiconductor Manufacturing (NYSE:TSM) After 95% One Year Rally?
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If you are wondering whether Taiwan Semiconductor Manufacturing’s current share price still makes sense, this article walks through what the market might be implying about its value today.
The stock last closed at US$370.04, with returns of 1.0% over 7 days, 10.5% over 30 days, 15.8% year to date, 95.1% over 1 year, very large gains over 3 years and 206.0% over 5 years, which may shape how much upside or downside investors feel is left.
Recent attention on Taiwan Semiconductor Manufacturing has been driven by its central role in global chip supply, with ongoing discussion about its position in high performance computing and smartphone chips, as well as industry capacity and geopolitical headlines around Taiwan. These themes continue to influence how investors think about both the company specific risks and the broader semiconductor sector.
On Simply Wall St’s 6 point valuation checklist, Taiwan Semiconductor Manufacturing scores 3 out of 6 for being assessed as undervalued. Next, we will look at what different valuation approaches say about this pricing, then finish with a method that can help you put all of those signals into a single, clearer view.
A Discounted Cash Flow, or DCF, model estimates what a company might be worth today by projecting its future cash flows and discounting them back to the present using a required rate of return.
For Taiwan Semiconductor Manufacturing, the model starts with last twelve month free cash flow of about NT$900.2b and then uses analyst forecasts and extrapolated estimates to project cash flows over the next decade. Simply Wall St uses a 2 Stage Free Cash Flow to Equity approach, with specific projections such as NT$2,858.6b in free cash flow for 2029, and a series of further estimates out to 2035.
Based on these cash flow projections, the DCF model produces an estimated intrinsic value of US$300.88 per share. Compared with the recent share price of US$370.04, this implies the stock is about 23.0% overvalued according to this method.
For a profitable business like Taiwan Semiconductor Manufacturing, the P/E ratio is a useful way to relate what you pay per share to the earnings the company is currently generating.
What counts as a “normal” or “fair” P/E often reflects how quickly earnings are expected to grow and how risky those earnings are judged to be. Higher expected growth and lower perceived risk can support a higher multiple, while slower growth or higher risk tend to support a lower one.
Taiwan Semiconductor Manufacturing currently trades on a P/E of about 28.7x. That sits below the Semiconductor industry average of about 43.0x and also below the peer group average of around 57.4x. On the surface, simple peer or industry comparisons might suggest the shares are priced more conservatively.
Simply Wall St’s Fair Ratio for Taiwan Semiconductor Manufacturing is 41.2x. This is a proprietary estimate of what a reasonable P/E could be given the company’s earnings growth profile, profit margins, industry, market value and risk characteristics. Because it blends these company specific factors, it can be more informative than a straight comparison with broad industry or peer averages.
Comparing the current P/E of 28.7x with the Fair Ratio of 41.2x indicates the shares screen as undervalued on this metric.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way for you to write the story behind your numbers by linking your view of Taiwan Semiconductor Manufacturing’s future revenue, earnings and margins to a forecast and then to a fair value that you can compare with today’s price.
On Simply Wall St’s Community page, Narratives are easy to use and update automatically when fresh news or earnings arrive. This allows you to see in real time whether your assumed fair value still looks attractive or stretched relative to the live share price, which can help you decide if you are more comfortable buying, holding or selling.
For example, one Taiwan Semiconductor Manufacturing Narrative on the platform currently anchors on a fair value of about US$55 per share, while another is closer to US$635. That wide range reflects how different investors can look at the same business, weigh the same risks, use different growth and margin assumptions, and still arrive at very different but clearly explained fair values.
For Taiwan Semiconductor Manufacturing however, we will make it really easy for you with previews of two leading Taiwan Semiconductor Manufacturing Narratives:
🐂 Taiwan Semiconductor Manufacturing Bull Case
Fair value in this narrative: US$400.00 per share
Implied pricing gap: about 7.5% above the recent US$370.04 share price
Revenue growth assumption: 76.64%
Views TSMC as a central pillar of the global AI economy, with high exposure to high performance computing and AI accelerators and a wide customer base that includes large tech and cloud names.
Highlights high margins, strong credit ratings, large planned capex across Taiwan, the U.S., Japan and Europe, and a focus on funding growth largely from internal resources.
Flags key risks such as geopolitical tension around Taiwan, overseas fab efficiency, currency effects and customer concentration, but sees these as manageable within a broad competitive moat.
🐻 Taiwan Semiconductor Manufacturing Bear Case
Fair value in this narrative: US$118.40 per share
Implied pricing gap: about 212.6% above this fair value compared with the recent US$370.04 share price
Revenue growth assumption: 23.21%
Frames TSMC as a high quality chip foundry with supportive industry trends, but questions whether the share price already reflects optimistic assumptions around growth and dividends.
Emphasises concentration risks around geopolitics, reliance on a small set of advanced equipment suppliers and the importance of Taiwan based production, while also acknowledging efforts to diversify capacity overseas.
Uses moderate revenue growth and profitability assumptions and a long term P/E multiple to arrive at a fair value that sits well below the current market price.
Across the platform, there are 8 live Narratives on Taiwan Semiconductor Manufacturing, with 6 leaning toward an undervalued view and 2 pointing to a more cautious or overvalued stance. If you want to see how your own expectations stack up against these, you can start with these summaries, then build or adapt a Narrative that matches your revenue, margin and risk assumptions for TSMC.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
