Why Is Taiwan Semiconductor Stock Surging?

Core Viewpoint - Taiwan Semiconductor Manufacturing Company (TSMC) has seen a remarkable 65% increase in share price over the past year, driven by the demand for AI chips and high-performance computing, redefining its role as a fundamental infrastructure player in the tech industry [2][3]. Financial Performance - In Q3 2025, TSMC reported revenue of approximately $33.1 billion, a year-over-year increase of 40.8%, with earnings per share rising nearly 39% due to orders for advanced 3-nanometer and 5-nanometer technologies [3]. - Recent quarterly results showed record revenue exceeding 1.05 trillion New Taiwan dollars (approximately $33.7 billion), with stronger-than-expected earnings [4]. Growth Outlook - TSMC's management anticipates AI-related revenue will double in 2025, with analysts projecting mid-40% growth rates for this segment, driven by data center infrastructure expansion and AI adoption [5]. - Over 70% of TSMC's global foundry market share is linked to leading-edge nodes, with plans for 2-nanometer manufacturing to commence in the second half of 2025 [5]. Technological Leadership - TSMC's advanced packaging technologies, such as CoWoS, are crucial for AI accelerator chips, with demand for these technologies fully booked through 2026 [6]. - The company manufactures processors for various sectors, including smartphones, automotive, and IoT devices, with smartphones accounting for around 30-35% of revenue [7]. Capital Expenditure and Geopolitical Factors - TSMC plans to significantly increase capital spending to $52–$56 billion in 2026, a roughly 30% increase from 2025, for capacity expansion in multiple countries [8]. - A recent trade agreement between the U.S. and Taiwan has reduced tariffs on Taiwanese semiconductor products and secured $250 billion in Taiwanese investments in U.S. technology sectors, enhancing supply chain resilience [9]. Valuation and Future Considerations - TSMC is trading at a premium over historical averages, reflecting its unique role in advanced chip manufacturing and AI infrastructure [11]. - Key future considerations include the execution of its 2 nm roadmap, continued growth in AI chip revenue, and the translation of global capacity expansions into actual shipments [12].