Why TSMC Is an Undervalued AI Gem

Published Date : 15/07/2025 

While companies like Nvidia and AMD are basking in the AI spotlight, Taiwan Semiconductor Manufacturing (TSMC) offers a compelling value proposition with its leading position in chip fabrication and foundry services. 

Technology stock valuations are currently near all-time highs, driven by the euphoria surrounding artificial intelligence (AI). However, not all tech stocks are overvalued. Some under-the-radar opportunities exist, and one such gem is Taiwan Semiconductor Manufacturing Company (TSMC).

Both the S&P 500 and Nasdaq Composite indexes are hovering around all-time highs, thanks to the AI revolution. The semiconductor sector, in particular, has seen a significant uplift, with companies like Nvidia, Advanced Micro Devices (AMD), and Broadcom drawing a lot of attention. However, TSMC, a key player in the chip fabrication and foundry services, remains underappreciated and undervalued.

What Does Taiwan Semiconductor Manufacturing Do?

Semiconductor companies have been at the forefront of the AI revolution due to their role in producing graphics processing units (GPUs) and other advanced chipsets. GPUs are crucial for running sophisticated algorithms in parallel, enabling breakthroughs in generative AI applications. Nvidia and AMD are the market leaders in GPU design, while companies like Broadcom supply essential network infrastructure for data centers.

In the background, TSMC specializes in fabrication and foundry services, which are vital for transforming chip designs into physical products. According to data from TrendForce, TSMC holds a 68% share of the global wafer foundry market. This dominant position means that many leading AI developers, including Nvidia, rely heavily on TSMC for their chip production.

Wall Street Is Bullish, and It’s Easy to See Why

The total addressable market for semiconductors is projected to reach $996 billion by 2033, up from $530 billion just two years ago, according to Market.us. The semiconductor foundry market is expected to grow at a compound annual growth rate (CAGR) of 8.5% between 2024 and 2033, reaching a size of $276 billion by the early next decade.

McKinsey & Company reports that AI infrastructure spending could reach nearly $7 trillion by the middle of the next decade, with nearly half of this allocated to chips and related hardware for AI data centers. These trends bode well for TSMC, as rising demand for chips is a direct tailwind for its foundry business.

Is Taiwan Semiconductor Stock a Buy Right Now?

TSMC currently trades at a forward price-to-earnings (P/E) ratio of 24.3, which is a considerable discount compared to other leading chip stocks. It’s ironic that companies like Nvidia, AMD, and Broadcom, which rely heavily on TSMC’s services, are valued more highly by the market.

TSMC’s market-leading position in fabrication and foundry services, combined with robust demand from cloud hyperscalers and continued investment in data center infrastructure, provides a high degree of visibility into its future growth prospects. While TSMC’s valuation is higher than historical averages, it remains at a discount compared to levels seen in the back half of 2024. Moreover, its growth narrative has strengthened over the last several months.

Given these factors, TSMC appears to be a hidden bargain in a market of overpriced growth stocks. This makes it a compelling buy-and-hold opportunity for investors with a long-term horizon. 

Frequently Asked Questions (FAQS): 

Q: What is TSMC's market share in the wafer foundry market?

A: TSMC holds a 68% share of the global wafer foundry market, according to data from TrendForce.

Q: What is the projected growth rate of the semiconductor foundry market?

A: The semiconductor foundry market is expected to grow at a compound annual growth rate (CAGR) of 8.5% between 2024 and 2033, reaching a size of $276 billion by the early next decade, according to Market.us.

Q: How does TSMC's valuation compare to its peers?

A: TSMC currently trades at a forward P/E ratio of 24.3, which is a considerable discount compared to other leading chip stocks like Nvidia, AMD, and Broadcom.

Q: What are the key drivers of TSMC's growth?

A: Rising demand for chips, robust capital expenditures from cloud hyperscalers, and continued investment in data center infrastructure are key drivers of TSMC's growth.

Q: Why is TSMC considered a hidden bargain?

A: TSMC's market-leading position in chip fabrication and foundry services, combined with its undervalued stock and strong growth prospects, makes it a compelling buy-and-hold opportunity for long-term investors. 

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