
Taiwan Semiconductor Manufacturing Company Limited

TSM (Taiwan Semiconductor Manufacturing Company Limited) trades at -0.1x EV/Revenue — attractively valued for a semiconductor foundry company with strong gross margins (60%) and rapid growth (+30% YoY). The business is highly profitable at 72% EBIT margins. Forward PE of 1x.
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Taiwan Semiconductor Manufacturing Company (TSM) is the world's largest contract chip manufacturer, producing semiconductors for companies that design but don't manufacture their own chips. They serve tech giants like Apple, NVIDIA, and AMD by manufacturing everything from smartphone processors to AI chips using the most advanced fabrication technologies available. TSM makes money by charging per wafer manufactured, with premium pricing for cutting-edge processes.
TSM is riding the AI wave with revenue growing 36% in 2025 to $122B and expecting close to 30% growth in 2026. The company raised its 5-year revenue growth outlook to ~25% CAGR driven by insatiable demand for AI chips and leading-edge semiconductors. Management describes capacity as "very tight" with the HPC platform (primarily AI and data center chips) representing 55% of Q4 revenue.
TSM demonstrates exceptional profitability with gross margins expanding 380 basis points to 59.9% in 2025 and guided to reach 63-65% in Q1 2026. Operating margins hit 50.8% for full year 2025, up 510 basis points year-over-year, while the company targets 56%+ gross margins through the cycle. Free cash flow generation remains robust at $1T TWD in 2025, up 15.2% despite massive capacity investments.
TSM holds an unassailable lead in advanced semiconductor manufacturing with no meaningful competition at the cutting edge — Samsung and Intel lag significantly in process technology. The company's moat deepens with each new node generation, as the R&D and capital requirements become increasingly prohibitive for competitors. Their 77% share of advanced process revenue reflects this technological supremacy.
Q4 2025 results were exceptional with revenue beating guidance by delivering $33.7B (+38% YoY) and gross margins of 62.3% exceeding the high-end of guidance by 130 basis points. The company has consistently beaten earnings expectations across the last four quarters, with revenue beats ranging from 0.4% to 5.1%. Market sentiment appears increasingly bullish as management raised multi-year growth targets and accelerated capacity expansion plans.
Analyst sentiment is overwhelmingly positive given TSM's dominant position in AI chip manufacturing and raised growth outlook. The Street appears focused on the company's ability to capitalize on AI demand while managing the significant capital intensity required for expansion. Revenue estimates show strong growth expectations with CY27 revenue projected at $6.1T, representing continued robust expansion.
TSM is the essential picks-and-shovels play for the AI revolution, combining an unbreachable technology moat with explosive growth in the world's most important semiconductor market.
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| '25E | '26E | '27E | '28E | |
|---|---|---|---|---|
| Revenue | $3806.9B | $4951.2B | $6138.9B | $7375.5B |
| Growth | — | +30% | +24% | +20% |
| EBITDA | — | $3327.6B | $3854.0B | $4349.5B |
| Growth | — | +16% | +13% | |
| FCF | $1097.6B | $1524.8B | $1872.2B | $2199.1B |
| Margin | 29% |
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| 31% |
| 31% |
| 30% |
| EPS (PF) | $323.34 | $445.57 | $547.07 | $642.60 |
| Growth | — | +38% | +23% | +17% |
| PF Op Inc | — | $2530.8B | $3057.2B | $3552.7B |