Is TSM Stock Still Attractive After Its Huge AI Driven Three Year Surge?

• If you are wondering whether Taiwan Semiconductor Manufacturing is still a smart buy after its huge run, or if you would be overpaying at today's price, you are not alone.
• TSM's share price has pulled back about 5.5% over the last week, but it is still up around 0.7% over 30 days and 42.3% year to date, with a 44.5% gain over 1 year and 293.5% over 3 years.
• That surge in returns has coincided with ongoing optimism around chip demand for AI data centers and high performance computing, alongside a broader rotation into semiconductor leaders. At the same time, investors are weighing cyclical risks in smartphones and PCs and keeping an eye on geopolitical headlines that can quickly sway sentiment toward TSM.
• Our Simply Wall St valuation checks give TSM a 3/6 valuation score, suggesting some metrics still point to upside while others indicate caution. Next, we will unpack how DCFs, multiples, and other approaches line up, before finishing with a different way to think about what this valuation really means for long term investors.

Taiwan Semiconductor Manufacturing delivered 44.5% 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

A Discounted Cash Flow model estimates what a company is worth by projecting its future cash flows and then discounting those cash flows back to today. For Taiwan Semiconductor Manufacturing, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flows reported in NT$.

The latest twelve month free cash flow is about NT$802.4 Billion. Analysts expect this to rise strongly over the next decade, with Simply Wall St extrapolating forecasts beyond the formal analyst window. By 2035, free cash flow is projected to reach roughly NT$3.27 Trillion, implying robust but gradually slowing growth as the business matures.

When those future cash flows are discounted back to today, the resulting intrinsic value lands at about $217.18 per share. Compared to the current market price, the DCF suggests the stock is roughly 32.1% above that intrinsic value, indicating that a lot of future growth is already priced in and leaving less room for error.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Taiwan Semiconductor Manufacturing may be overvalued by 32.1%. Discover 909 undervalued stocks or create your own screener to find better value opportunities.

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

Approach 2: Taiwan Semiconductor Manufacturing Price vs Earnings

For profitable, established businesses like Taiwan Semiconductor Manufacturing, the price to earnings, or PE, ratio is a useful yardstick because it links what investors pay directly to the profits the company is generating today. In practice, higher growth and lower perceived risk generally justify a higher PE, while slower growth or elevated uncertainty usually warrant a lower, more conservative multiple.

TSM currently trades on a PE of about 23.7x, which sits well below the broader Semiconductor industry average of roughly 36.8x and far under the peer group average of around 60.7x. To move beyond simple comparisons, Simply Wall St uses a Fair Ratio, a proprietary PE estimate that reflects TSM’s specific earnings growth outlook, profitability, industry positioning, market cap and risk profile. This tailored approach is more informative than looking at peers alone because it adjusts for differences in quality, cyclicality and scale that can distort basic multiple comparisons.

TSM’s Fair PE Ratio is estimated at approximately 37.5x, noticeably higher than its current 23.7x, which indicates that the market may be pricing the stock below what these fundamentals might justify.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1463 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Taiwan Semiconductor Manufacturing Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple framework on Simply Wall St’s Community page where you attach a clear story about Taiwan Semiconductor Manufacturing’s future to numbers like your own fair value, revenue growth and margin assumptions. You can then link that story to a full financial forecast and resulting fair value that you can compare to today’s price to help decide whether to buy, hold or sell. That Narrative will also update dynamically as new earnings, news or guidance arrives. For example, one investor might build a very optimistic TSM view with aggressive AI driven revenue growth and a high fair value of $310 per share, while a more cautious investor could plug in slower growth, some margin pressure from overseas fabs and a much lower fair value, showing how the same company can reasonably support very different but transparent investment decisions.

Do you think there's more to the story for Taiwan Semiconductor Manufacturing? Head over to our Community to see what others are saying!

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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