Taiwan Semiconductor Manufacturing Shares Rise on Strong Outlook. Is It Too Late to Buy the Stock?

Core Viewpoint - Taiwan Semiconductor Manufacturing Company (TSMC) reported strong Q2 results and an optimistic outlook, with shares up nearly 25% year-to-date, driven by its leadership in advanced chip manufacturing for AI infrastructure [1][10]. Financial Performance - In Q2, TSMC's revenue increased by 44% to $30.1 billion, with earnings per American depositary receipt (ADR) soaring 67% to $2.47 [4]. - The company's gross margin expanded by 540 basis points year-over-year to 58.6%, although it anticipates a decline to 56.5% in Q3 due to currency headwinds and the ramp-up of new facilities [5]. Revenue Drivers - Advanced nodes (7 nm and under) accounted for 74% of TSMC's revenue, up from 67% a year ago, with the newest 3-nm technology contributing 24% of total wafer revenue, a significant increase from 15% [3]. - High-performance computing (HPC) was the largest revenue driver, making up 60% of total revenue in Q2, up from 52% a year ago, with HPC revenue climbing 14% sequentially [3]. Future Outlook - TSMC forecasts Q3 revenue between $31.8 billion and $33 billion, indicating approximately 38% year-over-year growth at the midpoint, with operating margins projected between 45.5% and 47.5% [6]. - The company raised its full-year revenue growth forecast to 30%, citing accelerating AI demand and strengthening data center orders [7]. Strategic Investments - TSMC is investing $165 billion in advanced semiconductor manufacturing in the U.S., with the construction of its second fab in Arizona completed and the first fab in high-volume production [8]. - The company plans to build six fabs, two advanced packaging facilities, and establish an R&D center [8]. Competitive Position - TSMC has established itself as a leader in the semiconductor value chain, benefiting from its scale and technological expertise, especially as rivals like Intel and Samsung face challenges [2][10]. - The company is well-positioned to capitalize on the ongoing AI infrastructure build-out, maintaining strong pricing power despite anticipated gross margin pressures from overseas expansion [11]. Valuation - TSMC's stock is trading at a forward price-to-earnings (P/E) ratio of 26 based on 2025 estimates, with a price/earnings-to-growth (PEG) ratio of around 0.7, indicating it is attractively valued [12].