Taiwan Semiconductor Stock Up 26% in 6 Months: Hold or Book Profits?

Taiwan Semiconductor Manufacturing Company (TSMC) has seen its stock surge 25.6% over the past six months, outperforming the sector, driven by strong Q2 2025 results including a 44% revenue increase to $30.07 billion and a raised FY2025 revenue growth guidance to 30%. This robust performance is primarily fueled by its dominant position in the global chip foundry market and pivotal role in the AI boom, with AI-related revenues tripling in 2024 and projected to double in 2025, backed by significant capital expenditures of $38B-$42B in 2025. Despite its favorable valuation and long-term tailwinds, TSMC faces near-term headwinds from softening PC/smartphone markets, margin pressure due to costly global expansion, and ongoing geopolitical risks, leading to a current 'hold' recommendation.

Analysis

Taiwan Semiconductor Manufacturing Company (TSM) has demonstrated significant market outperformance, with its stock climbing 25.6% in the last six months, surpassing the broader tech sector's 16.7% gain. This momentum is anchored by its dominant position in the chip foundry market and its pivotal role in the artificial intelligence supply chain, serving key clients like NVIDIA and Broadcom. The company's financial strength is evident in its Q2 2025 results, which saw revenue surge 44% year-over-year to $30.07 billion and EPS jump 61% to $2.47, driven by high demand for its advanced 3nm and 5nm nodes. Consequently, TSMC raised its full-year 2025 revenue growth guidance to 30%. To support this, capital expenditures are set to increase to between $38 billion and $42 billion in 2025. Despite this robust growth, the stock trades at a forward P/E of 21.83, a discount to the sector average of 27.25. However, significant headwinds temper the outlook, including weakness in the PC and smartphone markets, projected gross margin pressure of 2-3 percentage points from costly new fabs in the US, Japan, and Germany, and persistent geopolitical risks associated with U.S.-China relations.

Key Decisions for Investors

• Given the strong long-term AI revenue tailwinds and a valuation below the sector average, investors should consider holding existing positions to capitalize on the multi-year growth trajectory.
• It is critical to monitor for near-term margin compression, as the company's global expansion is projected to drag gross margins down by 2-3 percentage points, and to watch for any recovery in the soft PC and smartphone end-markets.
• Acknowledge the high geopolitical risk associated with U.S.-China tensions as a key variable that could introduce significant volatility, potentially overriding the company's strong fundamental outlook.