A Fresh Look at TSM (NYSE:TSM) Valuation After 26% Monthly Share Price Surge

Taiwan Semiconductor Manufacturing (NYSE:TSM) shares have caught investor attention recently, as the chipmaker's moves continue to influence the semiconductor landscape. With the stock up 26% over the past month, many are watching what comes next.

See our latest analysis for Taiwan Semiconductor Manufacturing.

That 26% gain over the last month signals real momentum for Taiwan Semiconductor Manufacturing, reflecting a larger shift as investors look to capitalize on surging demand for advanced chips and global leadership in the sector. While the short-term share price return has been particularly robust, the company’s 1-year total shareholder return of 63% points to a compelling blend of recent growth and steady longer-term performance.

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The key question now is whether Taiwan Semiconductor Manufacturing’s rapid run-up still leaves room for upside, or if robust performance means the market has already priced in all the future growth potential. Is there a buying opportunity, or is everything accounted for?

Price-to-Earnings of 25.1x: Is it justified?

With Taiwan Semiconductor Manufacturing closing at $292.19, its price-to-earnings (P/E) ratio stands at 25.1x, notably below the semiconductor industry average. This positioning suggests the market may be ascribing more conservative expectations to TSM compared to its peers.

The P/E ratio measures how much investors are willing to pay for each dollar of the company’s earnings. It serves as a gauge of relative market optimism about future profit growth. For TSM, a lower P/E can indicate either undervaluation or skepticism around long-term earnings momentum, despite its strong performance to date.

Looking at TSM’s P/E compared to the U.S. semiconductor industry average (37.7x), the peer average (55.8x), and an estimated fair P/E (42.3x), the valuation appears very cautious given the company’s robust earnings growth and industry leadership. The current multiple leaves potential room for upward re-rating if business momentum continues and the broader market adjusts its outlook.

Explore the SWS fair ratio for Taiwan Semiconductor Manufacturing

Result: Price-to-Earnings of 25.1x (UNDERVALUED)

However, risks remain, including potential shifts in global demand and competitive pressures. Either of these factors could change investor sentiment quickly.

Find out about the key risks to this Taiwan Semiconductor Manufacturing narrative.

Another View: Discounted Cash Flow Tells a Different Story

While the market looks favorably on TSM’s below-industry price-to-earnings ratio, our DCF model offers a divergent perspective. It calculates TSM’s fair value at $251.77, suggesting the current price sits above this level. Could the market be getting ahead of itself? Or is the growth outlook stronger than our forecast?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Taiwan Semiconductor Manufacturing for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Taiwan Semiconductor Manufacturing Narrative

If you have a different viewpoint or want to dive deeper into the numbers, you can quickly build your own perspective and narrative in just a few minutes. This allows you to interpret the data your way with Do it your way.

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding Taiwan Semiconductor Manufacturing.

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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.

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