Taiwan Semiconductor Stock Soars 18% YTD: Time to Hold or Book Profit?

Core Viewpoint - Taiwan Semiconductor Manufacturing Company (TSMC) has shown strong performance in a volatile market, achieving a 17.7% year-to-date gain, outperforming the broader Zacks Computer and Technology sector which rose 10.9% [1][4]. Performance Comparison - TSMC's stock has outperformed several peers, including ASML Holding, ON Semiconductor, and Marvell Technology, which have seen declines of 0.5%, 25.1%, and 30.6% year-to-date, respectively [2]. AI Boom and Growth Potential - The ongoing AI boom positions TSMC as a key player in a multi-year growth cycle, with AI-related revenues tripling in 2024 and expected to double again in 2025, achieving a 40% compound annual growth rate over the next five years [5][7]. - TSMC is investing between $38 billion and $42 billion in capital expenditures for 2025, focusing 70% on advanced manufacturing processes to meet rising AI chip demand [8][11]. Financial Performance - In Q2 2025, TSMC's revenues surged 44% year-over-year to $30.07 billion, with EPS increasing by 61% to $2.47, driven by demand for 3nm and 5nm chips [12][10]. - TSMC raised its revenue growth guidance for full-year 2025 to 30%, up from mid-20% projections, with Q3 revenue expectations between $31.8 billion and $33 billion [13]. Valuation - TSMC's stock trades at a forward 12-month price-to-earnings (P/E) multiple of 22.27, lower than the sector average of 27.47, making it appealing for long-term investors [15]. Near-Term Challenges - TSMC faces near-term challenges, including a 25% electricity price hike in Taiwan, softness in key markets like PCs and smartphones, and higher costs associated with global expansion [18][19][20]. - Geopolitical tensions, particularly U.S.-China relations, pose strategic risks due to TSMC's significant revenue exposure to China [21]. Conclusion - TSMC remains a cornerstone of the semiconductor industry with strong capabilities in advanced chip manufacturing and exposure to AI demand, but short-term headwinds suggest a cautious approach, recommending a hold position for now [22].