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Should You Buy, Sell or Hold TSM Stock Before Q3 Earnings Release?
Read MoreHide Full Article
Key Takeaways
The consensus mark for TSM's Q3 revenues and EPS indicates a YoY increase of 34% and 33.5%, respectively.
Advanced chip technologies and AI-led demand are expected to have boosted sales in Q3.
Cost pressures from new fabs abroad might have weighed on profitability.
Taiwan Semiconductor Manufacturing Company Ltd. (TSM - Free Report) is scheduled to report third-quarter 2025 results before the market opens on Oct. 16.
The Zacks Consensus Estimate for third-quarter earnings is pegged at $2.59 per share, implying a 33.5% increase from the year-ago quarter’s reported number. The estimate has been revised a penny upward over the past seven days.
Image Source: Zacks Investment Research
Taiwan Semiconductor expects revenues between $31.8 billion and $33 billion. The Zacks Consensus Estimate is pegged at $31.5 billion, indicating a rise of 34% from the year-ago quarter’s reported actuals.
Taiwan Semiconductor has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 6%.
Taiwan Semiconductor Manufacturing Company Ltd. Price and EPS Surprise
Our proven model does not conclusively predict an earnings beat for TSM this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Though Taiwan Semiconductor carries a Zacks Rank #3, it has an Earnings ESP of -0.48% at present. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Factors Likely to Influence TSM’s Q3 Results
Taiwan Semiconductor continues to assert its dominance in the semiconductor space, benefiting from a robust industry rebound fueled by the growing prominence of artificial intelligence (AI). The surge in AI-driven applications (in manufacturing and end products) has been a significant catalyst for chipset manufacturers like TSM. The rise of data-centric technologies, especially cloud computing, the Internet of Things (IoT) and the metaverse, has increased the demand for semiconductors, contributing to the company’s business performance in the to-be-reported quarter.
Taiwan Semiconductor’s consistent investments in next-generation and specialty technologies are likely to have driven growth in the third quarter. Its leadership in 7nm and 3nm chip technologies has been instrumental, offering advanced capabilities to customers in high-demand industries. The 5nm process technology has also contributed to TSM’s wafer revenues, reflecting the solid market adoption of these smaller, more efficient chipsets. Taiwan Semiconductor's strategic focus on ramping up 3nm production while advancing its 2nm development positions it for continued leadership in the semiconductor space.
Taiwan Semiconductor's expansion into high-performance computing (HPC) and smartphone sectors is expected to have bolstered its performance in the to-be-reported quarter. The company’s innovative 3nm Fin Field-Effect Transistor (FinFET) technology, alongside its range of FinFET options (spanning 4nm, 5nm, 6nm and 7nm nodes), has become a key growth driver, particularly in HPC applications. TSM’s advanced FinFET technologies, such as the enhanced 3nm and variants of the 4nm and 5nm chips, have helped it maintain strong momentum in the smartphone market.
Taiwan Semiconductor's technological advancements are anticipated to have supported its expansion into automotive, IoT and digital consumer electronics. The adoption of TSM’s multi-project wafer processing service, which helps customers cut costs, is likely to have boosted the company’s top-line growth. This diversification across industries enhances TSM’s resilience and offers multiple revenue streams.
However, rising operational costs, especially from its overseas expansion into Arizona, Japan and Germany, are likely to have hurt Taiwan Semiconductor’s gross margin in the to-be-reported quarter. Also, higher electricity prices in Taiwan are anticipated to have negatively hurt its profitability in the third quarter.
TSM Stock Price Performance & Valuation
Taiwan Semiconductor shares have appreciated 42.1% year to date (YTD), outperforming the Zacks Computer and Technology sector’s rise of 19.6%. However, compared to other major players in the semiconductor space, TSM stock has outperformed Broadcom Inc. (AVGO - Free Report) , NVIDIA (NVDA - Free Report) and Marvell Technology (MRVL - Free Report) . YTD, shares of Broadcom and NVIDIA have soared 40% and 36.4%, respectively, while Marvell Technology declined 22.5%.
Taiwan Semiconductor YTD Price Return Performance
Image Source: Zacks Investment Research
Now, let’s look at the value that Taiwan Semiconductor offers to its investors at the current levels. Currently, TSM is trading at a discount, with a forward 12-month P/E of 25.62X compared with the sector’s 28.43X.
Taiwan Semiconductor Forward 12-Month P/E Ration
Image Source: Zacks Investment Research
Taiwan Semiconductor also trades at a lower P/E multiple compared with Broadcom, NVIDIA and Marvell Technology. At present, Broadcom, NVIDIA and Marvell Technology trade at forward 12-month P/E multiples of 35.98, 32.32 and 26.95, respectively.
Investment Thesis for TSM Stock
Taiwan Semiconductor sits at the center of the artificial intelligence (AI) revolution. As the world’s largest contract chipmaker, TSMC supplies cutting-edge chips to companies like NVIDIA, Advanced Micro Devices and Intel, all of which depend on TSMC’s ability to manufacture at advanced nodes.
In 2024, AI-related revenues tripled, making up a mid-teen percentage of Taiwan Semiconductor’s total revenues, and the momentum is far from over. The company expects AI-related sales to double again in 2025, with an impressive 40% compound annual growth rate over the next five years. This positions TSMC as the undisputed backbone of AI-driven technological advancements.
Despite its strengths, Taiwan Semiconductor witnesses near-term hurdles. Escalating geopolitical tensions, particularly U.S.-China relations, pose strategic risks. With significant revenue exposure to China, Taiwan Semiconductor is vulnerable to export restrictions, supply-chain disruptions or further regulatory pressure. These uncertainties could weigh on near-term performance.
The company’s global expansion strategy adds further strain. New fabs in the United States (Arizona), Japan and Germany are vital for geopolitical risk mitigation, but they come with higher costs. These facilities are expected to drag down gross margins by 2-3 percentage points annually over the next three to five years due to higher labor and energy costs, along with lower utilization rates in the early stages.
Final Thoughts: Hold TSM Stock for Now
Taiwan Semiconductor remains a cornerstone of the semiconductor industry. Its unmatched capabilities in advanced chip manufacturing, strong exposure to AI demand and expanding capacity give it a solid long-term trajectory.
However, short-term headwinds, including geopolitical issues and expected pressure on gross margin due to global expansion measures, call for a more cautious stance. Given its valuation and growth backdrop, holding the stock makes the most sense right now.
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Should You Buy, Sell or Hold TSM Stock Before Q3 Earnings Release?
Key Takeaways
Taiwan Semiconductor Manufacturing Company Ltd. (TSM - Free Report) is scheduled to report third-quarter 2025 results before the market opens on Oct. 16.
The Zacks Consensus Estimate for third-quarter earnings is pegged at $2.59 per share, implying a 33.5% increase from the year-ago quarter’s reported number. The estimate has been revised a penny upward over the past seven days.
Image Source: Zacks Investment Research
Taiwan Semiconductor expects revenues between $31.8 billion and $33 billion. The Zacks Consensus Estimate is pegged at $31.5 billion, indicating a rise of 34% from the year-ago quarter’s reported actuals.
Taiwan Semiconductor has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 6%.
Taiwan Semiconductor Manufacturing Company Ltd. Price and EPS Surprise
Taiwan Semiconductor Manufacturing Company Ltd. price-eps-surprise | Taiwan Semiconductor Manufacturing Company Ltd. Quote
Earnings Whispers for Taiwan Semiconductor Stock
Our proven model does not conclusively predict an earnings beat for TSM this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Though Taiwan Semiconductor carries a Zacks Rank #3, it has an Earnings ESP of -0.48% at present. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Factors Likely to Influence TSM’s Q3 Results
Taiwan Semiconductor continues to assert its dominance in the semiconductor space, benefiting from a robust industry rebound fueled by the growing prominence of artificial intelligence (AI). The surge in AI-driven applications (in manufacturing and end products) has been a significant catalyst for chipset manufacturers like TSM. The rise of data-centric technologies, especially cloud computing, the Internet of Things (IoT) and the metaverse, has increased the demand for semiconductors, contributing to the company’s business performance in the to-be-reported quarter.
Taiwan Semiconductor’s consistent investments in next-generation and specialty technologies are likely to have driven growth in the third quarter. Its leadership in 7nm and 3nm chip technologies has been instrumental, offering advanced capabilities to customers in high-demand industries. The 5nm process technology has also contributed to TSM’s wafer revenues, reflecting the solid market adoption of these smaller, more efficient chipsets. Taiwan Semiconductor's strategic focus on ramping up 3nm production while advancing its 2nm development positions it for continued leadership in the semiconductor space.
Taiwan Semiconductor's expansion into high-performance computing (HPC) and smartphone sectors is expected to have bolstered its performance in the to-be-reported quarter. The company’s innovative 3nm Fin Field-Effect Transistor (FinFET) technology, alongside its range of FinFET options (spanning 4nm, 5nm, 6nm and 7nm nodes), has become a key growth driver, particularly in HPC applications. TSM’s advanced FinFET technologies, such as the enhanced 3nm and variants of the 4nm and 5nm chips, have helped it maintain strong momentum in the smartphone market.
Taiwan Semiconductor's technological advancements are anticipated to have supported its expansion into automotive, IoT and digital consumer electronics. The adoption of TSM’s multi-project wafer processing service, which helps customers cut costs, is likely to have boosted the company’s top-line growth. This diversification across industries enhances TSM’s resilience and offers multiple revenue streams.
However, rising operational costs, especially from its overseas expansion into Arizona, Japan and Germany, are likely to have hurt Taiwan Semiconductor’s gross margin in the to-be-reported quarter. Also, higher electricity prices in Taiwan are anticipated to have negatively hurt its profitability in the third quarter.
TSM Stock Price Performance & Valuation
Taiwan Semiconductor shares have appreciated 42.1% year to date (YTD), outperforming the Zacks Computer and Technology sector’s rise of 19.6%. However, compared to other major players in the semiconductor space, TSM stock has outperformed Broadcom Inc. (AVGO - Free Report) , NVIDIA (NVDA - Free Report) and Marvell Technology (MRVL - Free Report) . YTD, shares of Broadcom and NVIDIA have soared 40% and 36.4%, respectively, while Marvell Technology declined 22.5%.
Taiwan Semiconductor YTD Price Return Performance
Image Source: Zacks Investment Research
Now, let’s look at the value that Taiwan Semiconductor offers to its investors at the current levels. Currently, TSM is trading at a discount, with a forward 12-month P/E of 25.62X compared with the sector’s 28.43X.
Taiwan Semiconductor Forward 12-Month P/E Ration
Image Source: Zacks Investment Research
Taiwan Semiconductor also trades at a lower P/E multiple compared with Broadcom, NVIDIA and Marvell Technology. At present, Broadcom, NVIDIA and Marvell Technology trade at forward 12-month P/E multiples of 35.98, 32.32 and 26.95, respectively.
Investment Thesis for TSM Stock
Taiwan Semiconductor sits at the center of the artificial intelligence (AI) revolution. As the world’s largest contract chipmaker, TSMC supplies cutting-edge chips to companies like NVIDIA, Advanced Micro Devices and Intel, all of which depend on TSMC’s ability to manufacture at advanced nodes.
In 2024, AI-related revenues tripled, making up a mid-teen percentage of Taiwan Semiconductor’s total revenues, and the momentum is far from over. The company expects AI-related sales to double again in 2025, with an impressive 40% compound annual growth rate over the next five years. This positions TSMC as the undisputed backbone of AI-driven technological advancements.
Despite its strengths, Taiwan Semiconductor witnesses near-term hurdles. Escalating geopolitical tensions, particularly U.S.-China relations, pose strategic risks. With significant revenue exposure to China, Taiwan Semiconductor is vulnerable to export restrictions, supply-chain disruptions or further regulatory pressure. These uncertainties could weigh on near-term performance.
The company’s global expansion strategy adds further strain. New fabs in the United States (Arizona), Japan and Germany are vital for geopolitical risk mitigation, but they come with higher costs. These facilities are expected to drag down gross margins by 2-3 percentage points annually over the next three to five years due to higher labor and energy costs, along with lower utilization rates in the early stages.
Final Thoughts: Hold TSM Stock for Now
Taiwan Semiconductor remains a cornerstone of the semiconductor industry. Its unmatched capabilities in advanced chip manufacturing, strong exposure to AI demand and expanding capacity give it a solid long-term trajectory.
However, short-term headwinds, including geopolitical issues and expected pressure on gross margin due to global expansion measures, call for a more cautious stance. Given its valuation and growth backdrop, holding the stock makes the most sense right now.