Is TSMC’s Stock Price Fair After 55.5% Surge and New Global Partnerships?

• Wondering if Taiwan Semiconductor Manufacturing’s stock is actually a bargain or just riding the hype? You are not alone. Let's dig in and see what's really going on with its value.
• This stock has delivered something for everyone lately, with a modest 0.9% gain over the past week, a 41.2% jump year-to-date, and a massive 55.5% return over the last year.
• One of the drivers behind these moves has been industry buzz around advanced chip manufacturing, along with headlines about new global partnerships and expanding production capabilities. These developments are stirring up optimism but also fueling some debate about future risks and rewards for the company.
• The company’s current valuation score stands at 3 out of 6, meaning it appears undervalued on half of our major checks. Next, we will unpack exactly how analysts are valuing the business, but keep an eye out for a smarter, more holistic approach to valuation that we will review at the end.

Taiwan Semiconductor Manufacturing delivered 55.5% 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

The Discounted Cash Flow (DCF) approach estimates a company's intrinsic value by projecting its future cash flows and then discounting those flows back to today's value. In simple terms, it asks how much all the money a company is expected to make in the future is worth in today’s dollars.

For Taiwan Semiconductor Manufacturing, the DCF model uses NT$802.4 billion in Free Cash Flow (FCF) reported over the last twelve months as a starting point. Analyst estimates project steady FCF growth, with forecasts increasing to NT$2.77 trillion by the end of 2029. While direct analyst forecasts typically extend only a few years, additional projections beyond that are extrapolated using industry-standard growth assumptions for a holistic outlook.

Based on this approach, the model calculates a fair value of $261.19 per share. When compared with the current market price, the DCF suggests the stock is approximately 9.0% overvalued at present, placing it just outside the bargain range. In short, investors may want to hold off expecting a strong discount. This valuation implies that the stock price is like its growth prospects: solid, but largely recognized by the market already.

Result: ABOUT RIGHT

Taiwan Semiconductor Manufacturing is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

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

The price-to-earnings (PE) ratio is a tried-and-true tool for evaluating profitable companies like Taiwan Semiconductor Manufacturing, because it directly connects a company's share price to its bottom-line profits. For investors, this metric quickly shows what you are paying for each dollar of earnings the company generates.

While PE ratios can vary widely by company, industry, and market conditions, they are especially influenced by investors’ expectations for growth and their perceptions of risk. High growth prospects and lower risks tend to warrant higher PE ratios, while uncertainties or sluggish growth usually keep them lower. In other words, a "normal" or "fair" PE for a company is shaped by both where it sits among its peers and what the future might hold.

Currently, Taiwan Semiconductor Manufacturing trades at a PE ratio of 22.7x. This is noticeably below the semiconductor industry average of 33.7x, and far below the average among its closest peers, which is 67.0x. At first glance, the stock appears favorably priced compared to both of these benchmarks.

However, Simply Wall St's Fair Ratio digs deeper by considering Taiwan Semiconductor’s earnings growth potential, profit margins, risk factors, industry context, and even its market cap. Unlike simpler peer or industry comparisons, the Fair Ratio aims to capture a more individualized, objective insight. In this case, the proprietary Fair Ratio for Taiwan Semiconductor stands at 46.3x. Compared to the actual PE ratio of 22.7x, the company’s stock appears attractively valued on an earnings basis.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1440 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's introduce you to Narratives, a powerful new approach that puts your perspective at the center of investment decisions.

A Narrative connects the story you believe about a company to numbers like future revenue, margins, and ultimately a fair value. On Simply Wall St's platform, millions of investors use Narratives within the Community page to articulate their outlook. You choose your assumptions about the business, link those to a financial forecast, and instantly see your own fair value compared to the current price.

This approach helps you make smarter buy or sell decisions by aligning the numbers with your personal thesis, instead of relying solely on generic models. Narratives are updated automatically whenever fresh company data or news is released, so your view always stays in sync with reality.

For example, some investors forecast rapid AI-driven growth and see a fair value for TSMC as high as $310 per share, while others take a more conservative stance and estimate the stock is worth $118.40. By exploring different Narratives, you can quickly see how your own story compares and adjust your confidence accordingly.

For Taiwan Semiconductor Manufacturing, here are previews of two leading Taiwan Semiconductor Manufacturing Narratives:

🐂 Taiwan Semiconductor Manufacturing Bull Case

Fair Value: $310.00

Undervalued by approximately 8.2%

Revenue Growth Rate: 0%

• Dominates the global foundry market with advanced chip manufacturing, significant expansion plans, and a strategic international presence.
• Shows financial strength with high profitability, strong margins, resilient credit rating, and sustainable dividends.
• Positioned as an AI infrastructure leader supplying major tech firms, while recognizing risks such as geopolitical tensions, currency pressures, and key customer dependency.

🐻 Taiwan Semiconductor Manufacturing Bear Case

Fair Value: $118.40

Overvalued by approximately 140.4%

Revenue Growth Rate: -23.21%

• Geopolitical stability is crucial, and any disruption in China-Taiwan relations could pose major risks for TSMC and the broader chip industry.
• TSMC benefits from industry growth and leading technology but faces risks from customer concentration, reliance on a single hardware supplier, and rising expansion costs.
• The fair value estimate is more conservative, highlighting macro risks and questioning the sustainability of premium multiples given potential cost and market pressures.

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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