Should You Buy, Sell or Hold TSM Stock Before Q3 Earnings Release?

Core Insights - Taiwan Semiconductor Manufacturing Company Ltd. (TSM) is set to report its third-quarter 2025 results on October 16, with earnings expected to rise by 33.5% year-over-year to $2.59 per share [1][2] - The company anticipates revenues between $31.8 billion and $33 billion, reflecting a 34% increase from the previous year [2][8] Financial Performance - The Zacks Consensus Estimate for TSM's third-quarter earnings has been revised upward by a penny over the past week [1] - TSM has a history of earnings surprises, having outperformed the Zacks Consensus Estimate in the last four quarters with an average beat of 6% [3] Market Position and Demand Drivers - TSM is benefiting from a robust semiconductor industry rebound, driven by the increasing demand for artificial intelligence (AI) applications [6] - The company's leadership in advanced chip technologies, particularly in 7nm and 3nm processes, is expected to contribute significantly to its growth [7][9] Revenue Growth Factors - The consensus estimates indicate a year-over-year increase in revenues and earnings per share, driven by advanced chip technologies and AI-led demand [8] - TSM's expansion into high-performance computing (HPC) and smartphone sectors is anticipated to enhance its performance [9][10] Cost Pressures - Rising operational costs from overseas expansions in Arizona, Japan, and Germany may negatively impact TSM's gross margins [11][22] - Increased electricity prices in Taiwan are also expected to affect profitability in the upcoming quarter [11] Stock Performance and Valuation - TSM shares have appreciated 42.1% year-to-date, outperforming the Zacks Computer and Technology sector [12] - The company is currently trading at a forward 12-month P/E of 25.62, which is lower than the sector average of 28.43 [15][18] Strategic Outlook - TSM is positioned as a key player in the AI revolution, with AI-related revenues expected to double in 2025 and a projected 40% compound annual growth rate over the next five years [20] - However, geopolitical tensions, particularly regarding U.S.-China relations, pose strategic risks that could impact TSM's near-term performance [21][22] Conclusion - TSM remains a cornerstone of the semiconductor industry, with strong capabilities in advanced chip manufacturing and exposure to AI demand [23] - Short-term headwinds, including geopolitical issues and margin pressures from global expansion, suggest a cautious approach to investment in TSM stock [24]