Taiwan Semiconductor Earnings: Lifting Fair Value Estimate After a Beat-and-Raise Quarter

Key Morningstar Metrics for Taiwan Semiconductor Manufacturing

• Fair Value Estimate
  : $534.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Taiwan Semiconductor Manufacturing’s Earnings

Taiwan Semiconductor Manufacturing TSM raised its 2026 capex budget by $8 billion to $62 billion at the midpoint and full-year revenue growth target to over 40% in US dollars. It announced plans to invest an additional $100 billion in Arizona, for a total of $265 billion.

Why it matters: We believe higher full-year revenue and capital expenditure guidance ease concerns about the durability of artificial intelligence growth and supply chain bottlenecks. The capex hike is a response to hyperscalers raising their 2027 budgets. We raise our 2026 to 2030 capex forecasts by 22% on average.

• TSMC’s expanded investment plans in Arizona show durable demand growth in US AI data center customers, and it doubles as a hedge against potential tariffs and geopolitical risks. We suspect TSMC is vague on timing to reserve flexibility in case of a temporary slowdown in AI buildout.
• We expect price hikes in 2027 due to higher raw material costs and tight supply. Meanwhile, the higher 2026 revenue guidance reflects AI demand benefiting both leading-edge and mature processes, plus production of more expensive 2-nanometer chips ramping up faster than expected.

The bottom line: We raise our fair value estimate for wide-moat TSMC to $534 per ADR share, as we believe hyperscalers’ elevated spending in the coming years justifies TSMC’s bigger capex budget.

• We believe the market is overly cautious about recent financing activities to build more data centers. Nvidia’s revenue-sharing scheme may sound alarming, but the scale of neoclouds is dwarfed by stratospheric investments by hyperscalers like Microsoft and Alphabet.

Big picture: TSMC sees no material bottlenecks to expansion. We attribute this confidence to its supplier ASML’s plans to increase capacity by 30% in 2027 and another 30% in 2028. Our higher TSMC capex estimates also hinge partly on ASML’s ability to execute its expansion.