Why TSMC is 'Priced Not Cheap' - Foreign media assess reasonable premium, upside potential revealed

Taiwan Semiconductor Manufacturing Co. (TSMC) has seen its stock price soar by 68% over the last 12 months, largely fueled by robust demand for artificial intelligence chips and a series of record-breaking quarterly earnings. While the stock experienced an 8% decline in the past month, attributed to a broader semiconductor industry sell-off, its strong performance and promising profit outlook continue to justify its premium valuation.

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Wall Street analysts generally believe that TSMC's target price still has 22% upside from the current stock price.

Analysts note that TSMC's current price-to-earnings (P/E) ratio is approximately 11% higher than its five-year average, and its price-to-sales (P/S) ratio is 45% higher. However, this premium is supported by impressive earnings per share (EPS) growth projections. The company anticipates a 57% profit increase in 2026, followed by 27% growth in 2027 and a further 32% in 2028. Such growth rates are remarkable for a company with a market capitalization approaching $2 trillion.

TSMC's financial health further bolsters its valuation. The company holds over $110 billion in cash against only $30 billion in debt, boasting nearly $80 billion in net cash flow. This strong financial position allows TSMC to fund its expansion without concern. Consequently, while the stock may not appear cheap based on book value, its rapid profit expansion and solid balance sheet provide a rational basis for its current valuation.

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For a company with a market capitalization approaching $2 trillion, such growth rates are remarkable.

The company recently reported second-quarter fiscal 2026 results, with revenue reaching $40.2 billion, a 36% year-over-year increase and at the high end of its forecast. Net profit surged 77% year-over-year to a record high, with a gross margin of 67.7%, also exceeding expectations. Strong demand for TSMC's leading-edge process technology, particularly for AI-related applications, was the primary driver. The company is further investing $100 billion in Arizona to meet this demand.

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TSMC holds $110.56 billion (NT$3.57 trillion) in cash, with liabilities of only $30.88 billion (NT$996 billion).

Looking ahead, TSMC projects third-quarter revenue between $44.6 billion and $45.8 billion, with a gross margin of 65% to 67%. This growth momentum is expected to continue, driven by the sustained demand for its advanced technologies. The company also anticipates significant growth from its 2-nanometer technology, which currently represents only 3% of total wafer revenue but is poised to reshape the chip business. TSMC has raised its full-year revenue growth forecast for 2026 to over 40%. Analysts at Barclays and Susquehanna have recently raised their target prices for TSMC, reflecting confidence in its future performance.

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The market's strong demand for TSMC's leading-edge process technology is the main factor driving the record-breaking performance.