Taiwan Semiconductor's Trillion-Dollar Valuation: The Chipmaker Enabling AI Boom

Taiwan Semiconductor Manufacturing Co TSM stock surged 256% in the last five years as it succeeded in tapping the artificial intelligence boom as a leading contract chipmaker.

It manufactures chips for everything from Nvidia Corp NVDA and Broadcom Inc AVGO processors to chips for Tesla Inc TSLA electric vehicles, especially their Full Self-Driving (FSD) systems, to Apple Inc AAPL smartphones.

All the aforementioned companies command over a trillion-dollar market cap. International Data Corp expects Taiwan Semiconductor to command a 67% share of the global foundry market in 2025.

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Reportedly, Taiwan Semiconductor is set for full-capacity production in the U.S. and Germany after commercializing its debut Japanese chip plant in Kikuyo, Kumamoto Prefecture, last December.

Its total investment in the U.S. stands at $65 billion, where Apple is its largest customer. Also, Nvidia is exploring the production of the front-end process of Blackwell AI chips at Taiwan Semiconductor's Arizona plant.

Meanwhile, the chipmaker remains committed to its ambitions for domestic expansion. It plans to build a massive 1nm fab in Tainan and expand advanced chip production with six new 12-inch plants. It also targets 1nm and 1.4nm expansion in Taiwan.

The contract chipmaker's move reflects continued demand for Nvidia GPU growth and production of custom-made ASIC chips for Broadcom and Advanced Micro Devices, Inc AMD, which cater to smartphones, PCs, automotive, and other applications.

All the aforementioned semiconductor companies were beneficiaries of the AI boom. Reportedly, a third of the ten global companies worth over $1 trillion came from the chip industry.

The Taiwanese chipmaker's stock gained 59% in the last 12 months, reaching a trillion-dollar valuation as U.S. Big Tech giants, including Microsoft Corp MSFT, Amazon.Com Inc AMZN, Alphabet Inc GOOG GOOGL, Meta Platforms Inc META, and Apple Inc AAPL, splurge on their AI data center ambitions to tap the growing demand for AI and cloud computing.

Daniel Ives of Wedbush told Reuters he expects tech stocks to surge 25% in 2025, backed by Trump's regulatory policies and AI capital expenditures.

On February 10, Taiwan Semiconductor disclosed that it expects first-quarter revenue at the lower end of $25 billion—$25.8 billion (versus the $24.97 billion consensus estimate) as the January 2025 earthquake in Taiwan affected its operations.

However, the chipmaker reiterated its gross margin outlook of 57%—59%. The margin outlook signifies the chipmaker's AI chip moat, differentiating it from Intel Corp INTC and Samsung Electronics SSNLF.

Taiwan Semiconductor's fourth-quarter revenue hit $26.88 billion, up 38.8% (versus a consensus estimate of $26.28 billion), driven by demand for AI chips and advanced node technologies.

As its 3-nm and 5-nm chips gained traction, its gross margins expanded by 600 bps to 59%.

The Taiwanese chipmaker committed fiscal 2025 capex worth $38 billion—$42 billion (versus $29.8 billion a year ago), signifying continued AI momentum.

Taiwan Semiconductor trades at a PE ratio of 29.9x versus Nvidia's 51.3x and Apple's 36.1x.

Goldman Sachs' Bruce Lu had expressed optimism over Taiwan Semiconductor's prospects, citing AI demand and advanced node growth. In 2025, Taiwan Semiconductor's price hikes for 3 and 5-nm nodes (while Intel and Samsung grappled with their AI technology) could boost its margins to over 59%.

Taiwan Semiconductor aggressively expanded its CoWoS capacity in 2024 and will double its capacity again in 2025. Lu sought Taiwan Semiconductor's view on potential new applications beyond AI, such as PCs or smartphones that will also adopt the CoWoS technology.

Taiwan Semiconductor has around 31.6 million shares in the U.S. ETF market. The largest ETF holder is the VanEck Semiconductor ETF SMH with approximately 16.60 million shares.

Price Action: TSM stock closed higher by 0.89% to $207.95 on Monday.

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