Taiwan Semiconductor Manufacturing Company Limited

(New York Stock Exchange)
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Bullish +65

Taiwan Semiconductor’s (TSM) Profit Rose 69% Last Quarter. Is the Stock Still Cheap?

AI infrastructure Earnings report Financial outlook AI-generated analysis

📈 TSM reported record quarterly results with revenue of $46.72 billion and net profit rising 68.7%.

🏭 Gross margins reached 66.4% during the ramp-up of a new advanced process node.

💰 The stock trades at 21.41x forward earnings, significantly below its historical average of 33.67x.

📊 Hedge fund ownership grew to $50.48 billion in Q2 2026, indicating strong institutional interest.

🤝 TSM serves as the primary foundry for major AI designers including Nvidia, Apple, and Broadcom.

⚠️ The company faces concentration risk as a handful of customers account for most advanced capacity.

🌏 Geopolitical uncertainty regarding TSM's manufacturing base in Taiwan remains a key strategic risk.

📉 Profit growth outpaced revenue growth, highlighting the benefits of high factory utilization rates.

Bullish Signals
  • Net profit rose 68.7% to beat guidance, driven by strong customer demand and full plant utilization.
  • Gross margin reached 66.4% while successfully ramping a new advanced process node.
  • The stock trades at a forward P/E of 21.41x, which is historically cheap compared to the 33.67x average.
  • Hedge fund ownership increased significantly, with stake value rising from $39.22 billion to $50.48 billion in Q2 2026.
Risk Factors
  • The company relies heavily on a small number of customers whose spending plans are set years in advance.
  • Geopolitical risks associated with manufacturing on an island with disputed political status pose a strategic threat.
  • Future stock performance depends entirely on the assumption that customer AI spending continues at current rates.
Full Analysis
Taiwan Semiconductor Manufacturing Company (TSM) reported its strongest quarter in company history, with net profit surging 68.7% to $46.72 billion in revenue, beating prior guidance. The stock closed at $422.25 on October 15, reflecting a 16.21% return over the last six months, outperforming major benchmarks like the S&P 500. The company achieved a gross margin of 66.4% while simultaneously ramping up mass production for its newest process node. This performance is notable because new process nodes typically depress margins initially due to low yields and high equipment costs, yet TSM maintained profitability through full plant utilization. Analysts view the stock as undervalued relative to its growth, trading at 21.41 times forward earnings compared to a historical average of 33.67x. However, the investment thesis relies heavily on the assumption that major customers like Nvidia and Apple will continue their aggressive spending plans despite geopolitical risks associated with TSM's primary manufacturing location. Hedge fund ownership increased significantly in Q2 2026, with 249 funds holding a combined stake of $50.48 billion, up from $39.22 billion the previous quarter. While the article notes that some analysts prefer other AI stocks for shorter time horizons, TSM remains positioned as a critical 'tollbooth' for the entire artificial intelligence industry.