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TSM Stock Up 33% YTD Amid Valuation Risk: Buy, Hold or Sell?
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Key Takeaways
TSMC raised its 2026 revenue outlook above 30% as AI and HPC demand stayed extremely robust.
TSMC is expanding N3 and N2 capacity across Taiwan, Arizona and Japan to ease supply constraints.
TSM faces margin dilution risks from overseas fabs and higher costs despite strong AI-driven growth.
Shares of Taiwan Semiconductor Manufacturing Company (TSM - Free Report) , popularly known as TSMC, have surged 33.2% year to date, sharply outperforming the broader Computer and Technology sector’s 16.8% increase and the S&P 500’s 9.1% rise. This was primarily driven by persistent demand for AI and high-performance computing, strong utilization of 3nm and improving profitability.
During TSMC’s first-quarter 2026 earnings, the company raised its 2026 revenue growth outlook and guided capital spending toward the high end of its $52-$56 billion range, as AI-related demand remained robust. The company also updated about expanding N3 and N2 capacity to address supply constraints.
Let’s see how the story could shape up for investors in Taiwan Semiconductor over the remaining months of 2026.
Taiwan Semiconductor YTD Stock Performance
Image Source: Zacks Investment Research
AI and HPC Demand Drive Growth
TSMC’s biggest growth driver in 2026 remains the explosive demand for AI and high-performance computing chips. On the first-quarter earnings call, the company said AI-related demand remained “extremely robust,” driven by the transition from generative AI to agentic AI, which requires significantly higher computing power. High-performance computing (HPC) accounted for 61% of first-quarter revenues, while advanced technologies, including 3nm, 5nm and 7nm, contributed 74% of wafer revenues. Management also raised its full-year 2026 revenue growth outlook to above 30% in U.S. dollar terms and increased capital spending guidance toward the high end of the $52-$56 billion range to support rising AI demand.
Advanced Node Expansion
Another major catalyst is TSMC’s aggressive expansion of advanced-node capacity. The company said strong demand for 3nm technologies from smartphone, HPC, AI, automotive and IoT customers has led it to expand global N3 capacity through new fabs in Taiwan, Arizona and Japan. TSMC also confirmed that N2 entered high-volume manufacturing in the fourth quarter of 2025 and is ramping successfully with strong customer interest from both smartphone and AI applications. Management expects the N2 family, including N2P and A16, to become another large and long-lasting node for the company. These investments are expected to support long-term growth in advanced semiconductor manufacturing for TSMC.
Strong Cash Position
TSMC ended the first quarter with cash and marketable securities of roughly TWD 3.4 trillion, or about $106 billion, while cash from operations reached TWD 699 billion during the quarter. This strong liquidity position allows TSMC to continue investing aggressively in advanced-node capacity, overseas fabs and technology expansion while maintaining its commitment to steadily increasing cash dividends. Management also guided second-quarter 2026 revenues between $39 billion and $40.2 billion, supported by continued strong demand for process technologies and AI-related applications.
Stumbling Block
TSMC faces several near-term challenges despite robust AI-driven demand. On its first-quarter 2026 earnings call, management warned that the ramp-up of 2nm technology and overseas fabs could dilute gross margins by 2%-3% in 2026, with overseas fab dilution potentially widening further over time. The company also flagged rising chemical and gas costs linked to the Middle East situation, while broader geopolitical and macroeconomic uncertainties could exert pressure on consumer and price-sensitive markets. In addition, persistent supply constraints and tight advanced-node capacity may limit TSMC’s ability to fully meet surging AI demand, even as the company aggressively expands global production capacity.
How Are Estimates Poised for TSMC?
The Zacks Consensus Estimate for 2026 earnings has improved over the past month to $15.25. The estimated figure indicates 43.2% improvement from the 2025 reported figure.
The consensus mark for 2026 revenues is pegged at $161.68 billion, indicating 32.1% year-over-year improvement.
Image Source: Zacks Investment Research
Expensive Valuation
The stock is currently trading at a forward 12-month price-to-sales (P/S) ratio of 11.83, which is significantly higher than the industry average of 6.87. This elevated valuation raises the risk of a pullback if macroeconomic and geopolitical pressures intensify.
Image Source: Zacks Investment Research
In comparison, peer Micron Technology (MU - Free Report) trades at a lower forward P/S of 9.18X. However, another peer, GlobalFoundries (GFS - Free Report) , is currently trading higher at 47.08X.
Our Take
TSMC remains well-positioned to benefit from AI and advanced semiconductor demand, supported by strong execution, expanding advanced-node capacity and a solid balance sheet. However, elevated valuation, margin dilution risks from overseas expansion and geopolitical uncertainties may limit near-term upside. Hence, investors should consider holding Taiwan Semiconductor Manufacturing Company, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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TSM Stock Up 33% YTD Amid Valuation Risk: Buy, Hold or Sell?
Key Takeaways
Shares of Taiwan Semiconductor Manufacturing Company (TSM - Free Report) , popularly known as TSMC, have surged 33.2% year to date, sharply outperforming the broader Computer and Technology sector’s 16.8% increase and the S&P 500’s 9.1% rise. This was primarily driven by persistent demand for AI and high-performance computing, strong utilization of 3nm and improving profitability.
During TSMC’s first-quarter 2026 earnings, the company raised its 2026 revenue growth outlook and guided capital spending toward the high end of its $52-$56 billion range, as AI-related demand remained robust. The company also updated about expanding N3 and N2 capacity to address supply constraints.
Let’s see how the story could shape up for investors in Taiwan Semiconductor over the remaining months of 2026.
Taiwan Semiconductor YTD Stock Performance
Image Source: Zacks Investment Research
AI and HPC Demand Drive Growth
TSMC’s biggest growth driver in 2026 remains the explosive demand for AI and high-performance computing chips. On the first-quarter earnings call, the company said AI-related demand remained “extremely robust,” driven by the transition from generative AI to agentic AI, which requires significantly higher computing power. High-performance computing (HPC) accounted for 61% of first-quarter revenues, while advanced technologies, including 3nm, 5nm and 7nm, contributed 74% of wafer revenues. Management also raised its full-year 2026 revenue growth outlook to above 30% in U.S. dollar terms and increased capital spending guidance toward the high end of the $52-$56 billion range to support rising AI demand.
Advanced Node Expansion
Another major catalyst is TSMC’s aggressive expansion of advanced-node capacity. The company said strong demand for 3nm technologies from smartphone, HPC, AI, automotive and IoT customers has led it to expand global N3 capacity through new fabs in Taiwan, Arizona and Japan. TSMC also confirmed that N2 entered high-volume manufacturing in the fourth quarter of 2025 and is ramping successfully with strong customer interest from both smartphone and AI applications. Management expects the N2 family, including N2P and A16, to become another large and long-lasting node for the company. These investments are expected to support long-term growth in advanced semiconductor manufacturing for TSMC.
Strong Cash Position
TSMC ended the first quarter with cash and marketable securities of roughly TWD 3.4 trillion, or about $106 billion, while cash from operations reached TWD 699 billion during the quarter. This strong liquidity position allows TSMC to continue investing aggressively in advanced-node capacity, overseas fabs and technology expansion while maintaining its commitment to steadily increasing cash dividends. Management also guided second-quarter 2026 revenues between $39 billion and $40.2 billion, supported by continued strong demand for process technologies and AI-related applications.
Stumbling Block
TSMC faces several near-term challenges despite robust AI-driven demand. On its first-quarter 2026 earnings call, management warned that the ramp-up of 2nm technology and overseas fabs could dilute gross margins by 2%-3% in 2026, with overseas fab dilution potentially widening further over time. The company also flagged rising chemical and gas costs linked to the Middle East situation, while broader geopolitical and macroeconomic uncertainties could exert pressure on consumer and price-sensitive markets. In addition, persistent supply constraints and tight advanced-node capacity may limit TSMC’s ability to fully meet surging AI demand, even as the company aggressively expands global production capacity.
How Are Estimates Poised for TSMC?
The Zacks Consensus Estimate for 2026 earnings has improved over the past month to $15.25. The estimated figure indicates 43.2% improvement from the 2025 reported figure.
The consensus mark for 2026 revenues is pegged at $161.68 billion, indicating 32.1% year-over-year improvement.
Image Source: Zacks Investment Research
Expensive Valuation
The stock is currently trading at a forward 12-month price-to-sales (P/S) ratio of 11.83, which is significantly higher than the industry average of 6.87. This elevated valuation raises the risk of a pullback if macroeconomic and geopolitical pressures intensify.
Image Source: Zacks Investment Research
In comparison, peer Micron Technology (MU - Free Report) trades at a lower forward P/S of 9.18X. However, another peer, GlobalFoundries (GFS - Free Report) , is currently trading higher at 47.08X.
Our Take
TSMC remains well-positioned to benefit from AI and advanced semiconductor demand, supported by strong execution, expanding advanced-node capacity and a solid balance sheet. However, elevated valuation, margin dilution risks from overseas expansion and geopolitical uncertainties may limit near-term upside. Hence, investors should consider holding Taiwan Semiconductor Manufacturing Company, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.