Taiwan Semiconductor: Chip Giant Reaching New Heights, Still Undervalued

Published Date : 16/08/2025 

Taiwan Semiconductor Manufacturing (TSMC) has hit a 52-week high, but its strong growth and undervaluation make it a compelling investment in the AI sector. Despite its significant gains, TSMC remains a top stock to buy now. 

Artificial intelligence (AI) stocks are diverse and offer multiple entry points for investors. One of the best ways to profit from this sector is through chipmakers, and at the top of this list is Taiwan Semiconductor Manufacturing (TSMC).

TSMC, the world's leading contract chip manufacturer, dominates the industry and continues to strengthen its position. Despite hitting a 52-week high, TSMC is still undervalued and has significant growth potential. It is one of the top stocks to buy now, and it's not too late to invest in this chip giant.

TSMC is a critical supplier to many AI companies. Unlike traditional chip manufacturers, TSMC acts as a foundry for fabless chip companies like Nvidia, Advanced Micro Devices (AMD), and Apple. This means it produces the chips that power the data centers of AI hyperscalers, which are essential for training and running AI models. The chips within these data centers are primarily sourced from TSMC, making it an indispensable player in the AI buildout.

Concerns about TSMC's location are being addressed. The company is diversifying its footprint and plans to spend $165 billion to increase U.S. capacity. This will allow products like Nvidia's GPUs to have chips fully sourced from the U.S., securing supply chains and avoiding tariffs. TSMC's commitment to increasing chip production with heightened demand is a long-term strategy that will pay off.

Despite a 220% rise in its stock since the AI arms race began in 2023, TSMC still has room to grow. At the start of 2025, TSMC's management predicted that AI-related revenue would grow at a 45% compound annual growth rate (CAGR) over the next five years, with overall revenue increasing at a 20% CAGR. This is market-crushing growth, yet TSMC's stock trades at a similar valuation to the broader market.

TSMC's forward P/E ratio is 24.7, only slightly higher than the S&P 500's forward P/E ratio of 23.7. Given TSMC's faster-than-average growth rate, this valuation suggests that the stock is still undervalued. TSMC is the second-fastest growing company with a $1 trillion valuation or greater, after Nvidia. However, compared to other big tech peers, it doesn't receive the same valuation.

TSMC's multiple could expand over the next few years, or it could maintain its current price while its market-crushing growth leads the way. Regardless, TSMC is poised to continue rising on the back of increased chip demand, making it a winning investment.

In summary, Taiwan Semiconductor Manufacturing is a chip giant that has hit new highs but remains undervalued. Its strong growth potential, critical role in the AI sector, and strategic diversification make it a top stock to buy now. 

Frequently Asked Questions (FAQS): 

Q: What is Taiwan Semiconductor Manufacturing (TSMC)?

A: Taiwan Semiconductor Manufacturing (TSMC) is the world's leading contract chip manufacturer, known for its dominance in the semiconductor industry. It acts as a foundry for fabless chip companies like Nvidia, AMD, and Apple.

Q: Why is TSMC important in the AI sector?

A: TSMC is crucial in the AI sector because it produces the chips that power the data centers of AI hyperscalers. These data centers are essential for training and running AI models, making TSMC an indispensable player in the AI buildout.

Q: What are TSMC's growth projections?

A: TSMC's management predicts that AI-related revenue will grow at a 45% compound annual growth rate (CAGR) over the next five years, with overall revenue increasing at a 20% CAGR. This is significantly higher than the market average.

Q: Is TSMC undervalued?

A: Despite hitting a 52-week high, TSMC is still considered undervalued. Its forward P/E ratio is 24.7, only slightly higher than the S&P 500's forward P/E ratio of 23.7. Given its faster-than-average growth rate, this valuation suggests that TSMC is undervalued.

Q: What is TSMC's strategy for diversifying its footprint?

A: TSMC plans to spend $165 billion to increase U.S. capacity. This will allow products like Nvidia's GPUs to have chips fully sourced from the U.S., securing supply chains and avoiding tariffs. 

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