Is TSMC (NYSE:TSM) Undervalued After Its Strong 3‑Month Rally and Recent Pullback?

Taiwan Semiconductor Manufacturing (NYSE:TSM) keeps drawing attention as investors reassess chip demand and AI-related spending, especially after the stock’s strong past 3 months followed by a modest pullback this month.

See our latest analysis for Taiwan Semiconductor Manufacturing.

The latest pullback comes after a powerful run, with the 90 day share price return of 25.61 percent and a one year total shareholder return of 48.83 percent, signaling that momentum is still very much intact.

If AI chip demand has your attention, it is also worth exploring other high growth tech names through our high growth tech and AI stocks to see what else is gaining traction.

With shares still trading at a double digit discount to analyst targets but coming off a huge multi year run, investors now face a key question: is TSM undervalued or already pricing in its AI driven future?

Most Popular Narrative Narrative: 4.7% Undervalued

According to oscargarcia, the narrative fair value of $310 sits slightly above the last close of $295.45, framing TSM as modestly underpriced despite its rally.

TSMC is the central pillar of the global semiconductor ecosystem, powering the AI revolution with unmatched scale, cutting-edge process technology, and disciplined execution. With record profits, dominant client base, and massive expansion underway, both in Taiwan and abroad, it stands as a low-risk way to own the AI infrastructure wave.

Read the complete narrative.

Curious how this narrative gets to that edge of undervaluation? It leans on powerful profit margins, ambitious future multiples, and a bold long term growth curve. Want to see which financial levers really drive that fair value call? Take a closer look at how those assumptions stack up against TSM’s current momentum.

Result: Fair Value of $310 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, sustained US China tensions and execution risks around costly overseas fabs could quickly pressure margins and challenge today’s optimistic, AI driven valuation.

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

Another View: DCF Flags Overvaluation

Our DCF model paints a cooler picture, putting fair value near $222.74 versus today’s $295.45, implying TSM might be overvalued by roughly a third. If cash flows are already priced for perfection, what happens if AI demand or margins slip?

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 916 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 this perspective does not fully align with your own, or you would rather dive into the numbers yourself, you can build a custom view in just a few minutes, Do it your way.

A great starting point for your Taiwan Semiconductor Manufacturing research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

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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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