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Why Taiwan Semiconductor (TSM) is a Must-Buy Momentum Play on the Dip?
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Key Takeaways
TSM posted Q2 2026 EPS up 74.5% as revenue rose 33.7% to $40.2B, topping estimates.
TSM expects Q3 revenue of $44.6B-$45.8B as AI demand and 2-nm production ramp support growth.
Taiwan Semiconductor plans another $100B for Arizona fabs, raising total investment there to $265B.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM - Free Report) — the largest dedicated integrated circuit foundry of AI-based chips for the world’s best AI chipset developers — has been witnessing softness in its stock price since the release of second-quarter 2026 earnings results. This softness provides a golden entry opportunity in this stock.
Demand for advanced manufacturing capacity continues to outpace supply, allowing TSM to benefit from favorable pricing, exceptional capacity utilization, and expanding profit margins. TSM's second-quarter 2026 EPS jumped 74.5% year over year as revenues rose 33.7% to $40.2 billion. Both earnings and revenues surpassed the respective Zacks Consensus Estimate.
The chart below shows the price performance of TSM year to date.
Image Source: Zacks Investment Research
Robust Product Portfolio
Taiwan Semiconductor is experiencing solid demand for its advanced technologies, such as 3-nanometer (nm) and 5nm. The growing adoption of its multi-project wafer processing service, which allows customers to reduce mask costs, is driving its customer momentum.
TSM’s high-performance computing revenues accounted for 66% of total revenues and increased 20% sequentially, reflecting sustained demand tied to artificial intelligence (AI) and data-center computing.
Smartphone revenues declined 4% sequentially and accounted for 22% of total revenues. Automotive revenues increased 15%, while Internet of Things revenues rose 4%. Digital consumer electronics and Other revenues increased 5% each on a sequential basis.
The 5-nm process remained the largest contributor to wafer revenues at 33%. The 3-nm node followed at 30%, while the 7-nm process contributed 11%. TSM’s 2-nm technology generated 3% of wafer revenues during its initial ramp.
Management expects continued strong demand for leading-edge technologies, including a steep increase in 2-nm production during the third quarter of 2026.
Impressive Clientele
TSM is the largest manufacturer of NVIDIA Corp.’s (NVDA - Free Report) chipsets. NVIDIA is globally the largest developer of generative AI-based chips. TSM also caters to Advanced Micro Devices Inc. (AMD - Free Report) , Apple Inc. (AAPL - Free Report) , Broadcom Inc. (AVGO - Free Report) and Intel Corp. (INTC - Free Report) to name a few.
Moreover, Taiwan Semiconductor announced an additional $100 billion investment plan for its Arizona fabrication plants, for a total of $265 billion. This indicates TSM’s confidence that the AI boom will continue and for that management is not hesitating to expand its capacity. This additional investment will be utilized for 2-nanometer and below production along with advanced packaging.
Solid Guidance
For the third quarter of 2026, Taiwan Semiconductor expects revenues between $44.6 billion and $45.8 billion. The midpoint implies sequential growth of roughly 12% and year-over-year growth of about 37%.
Gross margin is projected between 65% and 67%, while operating margin is expected in the 56-58% range. Management expects the 2-nanometer ramp to reduce gross margin by roughly 3-4% in the second half of 2026, partly offset by leading-edge demand, productivity gains and capacity optimization.
TSM expects 2026 revenues to increase slightly more than 40% in U.S. dollar terms.
Excellent Estimate Revisions
Taiwan Semiconductor has an expected revenue and earnings growth rate of 33.7% and 48.6%, for the current year. The Zacks Consensus Estimate for the current year’s earnings has improved 2.9% over the last seven days.
TSM has an expected revenue and earnings growth rate of 28.9% and 27.6%, for the next year. The Zacks Consensus Estimate for next year’s earnings has improved 2.6% over the last seven days.
TSM currently has a long-term (3-5 years) EPS growth rate of 26.5%, well above the S&P 500’s long-term EPS growth rate of 17.8%.
Image Source: Zacks Investment Research
Strong Upside Left
The stock price has climbed more than 30% year to date. Despite this, the average short-term price target of brokerage firms represents an increase of 17.4% from the last closing price of $398.37. The brokerage target price is currently in the range of $330-$600. This indicates, a maximum upside of 50.6% and a maximum downside of 17.2%. The risk/reward ratio is 1:2.94.
TSM recorded its all-time high price at $479 on June 30. After that, the stock price tumbled 16.8% due to an AI-related meltdown. However, the recent dip in stock price is a golden opportunity to enter this stock to enrich your portfolio over both the short and long term.
TSM’s solid outlook for 2026 reflects robust AI-related demand, including growing computing requirements from agentic AI applications and increased demand for CPUs alongside AI accelerators.
View the Zacks #1 Rank List
Image: Shutterstock
Why Taiwan Semiconductor (TSM) is a Must-Buy Momentum Play on the Dip?
Key Takeaways
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM - Free Report) — the largest dedicated integrated circuit foundry of AI-based chips for the world’s best AI chipset developers — has been witnessing softness in its stock price since the release of second-quarter 2026 earnings results. This softness provides a golden entry opportunity in this stock.
Demand for advanced manufacturing capacity continues to outpace supply, allowing TSM to benefit from favorable pricing, exceptional capacity utilization, and expanding profit margins. TSM's second-quarter 2026 EPS jumped 74.5% year over year as revenues rose 33.7% to $40.2 billion. Both earnings and revenues surpassed the respective Zacks Consensus Estimate.
The chart below shows the price performance of TSM year to date.
Image Source: Zacks Investment Research
Robust Product Portfolio
Taiwan Semiconductor is experiencing solid demand for its advanced technologies, such as 3-nanometer (nm) and 5nm. The growing adoption of its multi-project wafer processing service, which allows customers to reduce mask costs, is driving its customer momentum.
TSM’s high-performance computing revenues accounted for 66% of total revenues and increased 20% sequentially, reflecting sustained demand tied to artificial intelligence (AI) and data-center computing.
Smartphone revenues declined 4% sequentially and accounted for 22% of total revenues. Automotive revenues increased 15%, while Internet of Things revenues rose 4%. Digital consumer electronics and Other revenues increased 5% each on a sequential basis.
The 5-nm process remained the largest contributor to wafer revenues at 33%. The 3-nm node followed at 30%, while the 7-nm process contributed 11%. TSM’s 2-nm technology generated 3% of wafer revenues during its initial ramp.
Management expects continued strong demand for leading-edge technologies, including a steep increase in 2-nm production during the third quarter of 2026.
Impressive Clientele
TSM is the largest manufacturer of NVIDIA Corp.’s (NVDA - Free Report) chipsets. NVIDIA is globally the largest developer of generative AI-based chips. TSM also caters to Advanced Micro Devices Inc. (AMD - Free Report) , Apple Inc. (AAPL - Free Report) , Broadcom Inc. (AVGO - Free Report) and Intel Corp. (INTC - Free Report) to name a few.
Moreover, Taiwan Semiconductor announced an additional $100 billion investment plan for its Arizona fabrication plants, for a total of $265 billion. This indicates TSM’s confidence that the AI boom will continue and for that management is not hesitating to expand its capacity. This additional investment will be utilized for 2-nanometer and below production along with advanced packaging.
Solid Guidance
For the third quarter of 2026, Taiwan Semiconductor expects revenues between $44.6 billion and $45.8 billion. The midpoint implies sequential growth of roughly 12% and year-over-year growth of about 37%.
Gross margin is projected between 65% and 67%, while operating margin is expected in the 56-58% range. Management expects the 2-nanometer ramp to reduce gross margin by roughly 3-4% in the second half of 2026, partly offset by leading-edge demand, productivity gains and capacity optimization.
TSM expects 2026 revenues to increase slightly more than 40% in U.S. dollar terms.
Excellent Estimate Revisions
Taiwan Semiconductor has an expected revenue and earnings growth rate of 33.7% and 48.6%, for the current year. The Zacks Consensus Estimate for the current year’s earnings has improved 2.9% over the last seven days.
TSM has an expected revenue and earnings growth rate of 28.9% and 27.6%, for the next year. The Zacks Consensus Estimate for next year’s earnings has improved 2.6% over the last seven days.
TSM currently has a long-term (3-5 years) EPS growth rate of 26.5%, well above the S&P 500’s long-term EPS growth rate of 17.8%.
Image Source: Zacks Investment Research
Strong Upside Left
The stock price has climbed more than 30% year to date. Despite this, the average short-term price target of brokerage firms represents an increase of 17.4% from the last closing price of $398.37. The brokerage target price is currently in the range of $330-$600. This indicates, a maximum upside of 50.6% and a maximum downside of 17.2%. The risk/reward ratio is 1:2.94.
Investment Thesis
Taiwan Semiconductor sports a Zacks Rank #1 (Strong Buy) at present and has a Zacks Momentum Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
TSM recorded its all-time high price at $479 on June 30. After that, the stock price tumbled 16.8% due to an AI-related meltdown. However, the recent dip in stock price is a golden opportunity to enter this stock to enrich your portfolio over both the short and long term.
TSM’s solid outlook for 2026 reflects robust AI-related demand, including growing computing requirements from agentic AI applications and increased demand for CPUs alongside AI accelerators.
Image Source: Zacks Investment Research