Is TSM's Global Fab Push a Wise Expansion Move or a Costly Overreach?

Core Insights - Taiwan Semiconductor Manufacturing Company (TSMC) is expanding its manufacturing facilities internationally to meet the rising demand for AI and advanced computing chips [1][2] - The company aims to diversify its semiconductor supply chain and mitigate geopolitical risks through this expansion [2] Group 1: Expansion and Strategy - TSMC is constructing new fabs in the United States, Japan, and Germany [1][10] - The expansion is expected to help TSMC cater to the increasing demand for advanced nodes like 2nm and A16 chips [4] Group 2: Financial Performance - TSMC's revenues grew by 40.8% year over year to $33.1 billion in Q3 2025 [5] - The Zacks Consensus Estimate predicts revenue growth of 33.8% for 2025 and 20.6% for 2026 [5] Group 3: Margin and Cost Considerations - TSMC anticipates a near-term margin dilution of approximately 2%, potentially expanding to 3-4% as production scales [3][10] - The company believes that scale, automation, and government incentives will help close the cost gap associated with overseas operations [4][10] Group 4: Competitive Landscape - Intel is heavily investing in its foundry business, focusing on its 18A process for 1.8nm chips to compete with TSMC's upcoming N2 chips [6] - GlobalFoundries is also expanding its capacity in the U.S. and Europe, primarily focusing on mature nodes but seeing some AI-related demand [7] Group 5: Valuation and Estimates - TSMC's shares have increased by approximately 47.2% year to date, outperforming the Zacks Computer and Technology sector's gain of 23% [8] - The company trades at a forward price-to-earnings ratio of 25.53, which is lower than the sector average of 28.98 [11] - Earnings estimates for 2025 and 2026 indicate a year-over-year increase of 44.9% and 20.4%, respectively, with recent upward revisions [13]