Can TSMC’s Valuation Keep Rising After Stock Hits All-Time High in 2025?

If you’ve been eyeing Taiwan Semiconductor Manufacturing’s stock lately, you’re certainly not alone. Whether you’re already riding the wave or just looking for a good entry point, it’s tough to ignore those price charts. Shares recently closed at $302.89, up an impressive 16.8% over the past month and posting a jaw-dropping 50.3% gain since the start of the year. Looking even further back, the numbers get more astonishing, up 59.3% over the last twelve months and a remarkable 385.3% across three years. Investors seem increasingly optimistic about the company’s crucial position in the global chip supply chain, with tailwinds from worldwide AI adoption and persistent tech demand boosting confidence and compressing past market worries.

But the big question on everyone’s mind: with shares soaring like this, is Taiwan Semiconductor Manufacturing still a buy, or are you arriving late to the party? To answer that, we’ll need to put aside the hype and step into valuation territory. By our scoring metric, where a company gets one point for being undervalued in each of six key checks, Taiwan Semiconductor Manufacturing earns a 3 out of 6, suggesting there’s some value, but also areas where caution is warranted.

Let’s dive into how those valuation checks stack up, and, if you stick with me, why the usual methods might only tell part of the story. There’s a smarter way to figure out what this stock’s really worth.

Taiwan Semiconductor Manufacturing delivered 59.3% returns over the last year. See how this stacks up to the rest of the Semiconductor industry.

Approach 1: Taiwan Semiconductor Manufacturing Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future cash flows and bringing them back to today’s terms, allowing investors to gauge what a business is truly worth based on fundamentals rather than hype. For Taiwan Semiconductor Manufacturing, this method relies on cash flow forecasts in New Taiwan Dollars (NT$), extrapolating analyst insights and growth assumptions.

Presently, Taiwan Semiconductor Manufacturing generates NT$803.2 Billion in Free Cash Flow. Analyst estimates are available for the next five years, and Simply Wall St extends these projections up to a decade. By 2029, forecasts expect free cash flow to climb to NT$2,765.2 Billion. By 2035, further extrapolation brings estimates to NT$4,336.8 Billion. This robust growth trajectory underpins the DCF model's outlook for the company.

Based on these projections and under the "2 Stage Free Cash Flow to Equity" approach, the model calculates an intrinsic value of $302.59 per share. With shares recently trading at $302.89, the implied DCF discount is about -0.1%, which indicates the stock is trading almost exactly at its estimated fair value.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Taiwan Semiconductor Manufacturing.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Taiwan Semiconductor Manufacturing's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Taiwan Semiconductor Manufacturing Price vs Earnings

The price-to-earnings (PE) ratio is a go-to metric for valuing established, profitable companies like Taiwan Semiconductor Manufacturing, since it tells us how much investors are willing to pay for each dollar of earnings. When future growth rates or risk profiles vary, what counts as a “fair” PE shifts accordingly. High growth prospects and low risk typically justify higher PE multiples, while lower growth or higher risk weigh them down.

Currently, Taiwan Semiconductor Manufacturing trades at a PE ratio of 25x. This sits well below both the industry average of 36x and the peer average of 65x, suggesting the market is valuing the company’s earnings more conservatively compared to its competitors.

To get a sharper picture, Simply Wall St’s “Fair Ratio” goes a step further by calculating what PE multiple is justified based on the company’s earnings growth, profit margins, size, and risk profile, along with industry dynamics. The Fair Ratio for Taiwan Semiconductor Manufacturing is 43x, which is much more personalized than a simple comparison to industry or peer averages. This approach reflects the company’s strong fundamentals and tailors expectations to its unique financial outlook.

Since the current PE (25x) is meaningfully below the Fair Ratio (43x), the stock appears to be undervalued through this lens.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Taiwan Semiconductor Manufacturing Narrative

Earlier, we mentioned there is an even better way to understand valuation, so let's introduce you to Narratives, a simple yet transformative approach that puts your unique story behind the numbers. A Narrative is your perspective on a company, connecting your assumptions for future revenue, profit margins, and value estimates to a story about why the stock will thrive or struggle. Narratives link the company's journey to financial forecasts and a fair value, making complex valuation accessible for everyone.

Available on Simply Wall St's Community page, Narratives are used by millions of investors to clearly track their thesis and see exactly how their specific forecasts stack up against the current price. Once you have set your Narrative, it automatically updates as new news and earnings arrive, giving you a dynamic tool to help decide when to buy or sell. For example, some TSMC Narratives see fair value above $300 due to ongoing AI demand and geopolitical stability, while others warn of risks and target values below $120. Narratives empower you to make smarter, story-driven decisions and not just follow the crowd.

Do you think there's more to the story for Taiwan Semiconductor Manufacturing? Create your own Narrative to let the Community know!

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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