Is Now the Right Moment for TSMC as Shares Surge Nearly 50% This Year?

If you are trying to figure out whether Taiwan Semiconductor Manufacturing deserves a place in your portfolio, you are definitely not alone. The stock just closed at 301.53, and if you have been watching its performance, you have seen impressive returns roll in: up 2.4% last week, 10.3% over the last month, and a remarkable 49.6% so far this year. Stretching back one year, shares have climbed 54.8%, and the long-term growth is even more eye-catching, with three- and five-year returns of 409.1% and 267.6% respectively.

What is driving this momentum? Industry chatter points to the company’s ongoing push to cement its leadership in cutting-edge chipmaking technology, as well as continued optimism about global demand for semiconductors, especially as AI and next-gen tech ramp up investment. Recent headlines have highlighted TSMC’s strategic partnerships and further expansion plans. Both of these boost long-term confidence but also raise questions about competition, supply chain risk, and valuation.

This brings us to an often-debated question among investors: is now the right time to buy, hold, or trim your position? On the valuation front, Taiwan Semiconductor clocks in with a value score of 3, meaning the company looks undervalued on 3 out of 6 widely watched checks. That is promising, but anyone weighing a decision should look beyond summary scores and dig into the details.

So, is TSMC really as attractively priced as those numbers suggest? Let us walk through the different valuation approaches and see how they stack up. Stick around to discover a perspective on valuation you might not have considered yet.

Taiwan Semiconductor Manufacturing delivered 54.8% 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) method estimates what a company is worth by projecting its future cash flows and then discounting them back to their present value. For Taiwan Semiconductor Manufacturing, the analysis uses a two-stage Free Cash Flow to Equity model, which begins with analyst estimates for the first several years and then projects additional growth based on historical patterns and sector expectations.

Currently, TSMC’s latest twelve-month Free Cash Flow is NT$804,760 Million. Projections from analysts forecast a strong growth trajectory, with Free Cash Flow expected to reach NT$2,774,813 Million (NT$2.77 Trillion) by the end of 2029. Looking further ahead, Simply Wall St’s model projects Free Cash Flow out to 2035 and shows sustained upward momentum, though forecasts this far out carry more uncertainty.

After discounting these future cash flows back to today, the model calculates a fair value per share of $269.70. With the current share price at $301.53, the stock sits around 11.8% higher than its DCF-derived intrinsic value, which implies some overvaluation at the moment.

Result: OVERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Taiwan Semiconductor Manufacturing may be overvalued by 11.8%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Taiwan Semiconductor Manufacturing Price vs Earnings (P/E)

The Price-to-Earnings (P/E) ratio is one of the most useful valuation methods for profitable companies like Taiwan Semiconductor Manufacturing, as it tells you how much investors are willing to pay for a dollar of the company’s earnings. Since TSMC has a consistent earnings profile, the P/E multiple provides an accessible benchmark for comparison across the sector.

It is important to remember that a "normal" or "fair" P/E ratio depends on more than just profitability. A higher P/E can signal the market expects strong future growth or perceives lower risk. Conversely, a lower P/E often reflects more modest growth outlooks or potential concerns about the company’s prospects.

TSMC currently trades at a P/E ratio of 24.33x. That is well below the semiconductor industry average of 39.79x and also far under the average for global peers at 73.23x. However, Simply Wall St’s own Fair Ratio, calculated using a proprietary model that considers factors like TSMC’s earnings growth, profit margins, industry characteristics, market cap, and company-specific risks, lands at 43.99x.

This Fair Ratio is considered a stronger valuation tool than simple peer or industry comparisons because it is tailored for TSMC’s unique profile and future earnings power, not just industry-wide sentiment.

Comparing the Fair Ratio (43.99x) to the current P/E (24.33x), TSMC’s shares are trading well below their calculated fair value on this metric. This suggests the stock is attractively valued through this lens.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Taiwan Semiconductor Manufacturing Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives. A Narrative is a simple, powerful way for investors to connect the story and outlook they see for a company to specific financial forecasts and their own fair value estimate, bridging the gap between numbers and the real business world. Narratives help you express your perspective on Taiwan Semiconductor Manufacturing by combining your assumptions for future revenue, earnings, and margins. This approach provides a clear fair value you can compare to the current price to inform your buy or sell decision.

Narratives are available in an accessible format within the Community page on Simply Wall St, used by millions of investors, and dynamically update as new news or earnings come in. For example, some investors might see TSMC as benefiting from stable geopolitics and dominant industry growth and assign it a fair value of $118.4 per share. Others, seeing more risk or slower margin expansion, might arrive at a figure far lower. By exploring Narratives, you can see how your story compares to others and use this dynamic tool to invest more smartly, with your own assumptions front and center.

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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