Nvidia's Huang says buying TSMC's stock is 'very smart.' The pros share their take

Taiwan Semiconductor Manufacturing Co. (TSMC) is a focal point for investors, buoyed by Nvidia CEO Jensen Huang's strong endorsement and its recent market capitalization exceeding $1 trillion, driven by escalating AI demand. The company, critical for advanced chip manufacturing including Nvidia's next-gen AI processors, sees overwhelming analyst support with 42 of 44 ratings at 'buy' or 'overweight' and an average 15.7% upside. While experts like Macquarie's Arthur Lai and Morningstar's Phelix Lee remain highly bullish on sustained AI-driven growth and TSMC's quasi-monopoly, others, such as GFM Asset Management's Tariq Dennison, caution on its 23x forward earnings valuation, geopolitical uncertainties, and potential technological disruptions, despite acknowledging its manufacturing leadership.

Analysis

Taiwan Semiconductor Manufacturing Co. (TSMC) is experiencing a significant tailwind driven by its pivotal role in the artificial intelligence sector, underscored by a strong public endorsement from Nvidia's CEO. This has translated into tangible market gains, with the stock up 9.77% year-to-date and its market capitalization recently crossing the $1 trillion threshold on the back of robust AI-driven sales forecasts. The fundamental outlook is overwhelmingly positive, supported by an analyst consensus that sees a 15.7% potential upside and a near-unanimous 'buy' or 'overweight' rating from 42 out of 44 analysts. This sentiment is anchored in tangible business developments, including the finalization of designs for Nvidia's next-generation Rubin architecture and the company's leadership in advanced packaging (CoWoS). Furthermore, management has raised its full-year revenue growth guidance to approximately 30% in U.S. dollar terms, prompting analysts to increase 2025 and 2026 net profit forecasts. However, a contrarian view highlights potential risks, citing a premium valuation at 23 times forward earnings that may not fully price in geopolitical uncertainties or the threat of technological disruption, despite the company's clear manufacturing lead.

Key Decisions for Investors

• Given TSMC's quasi-monopoly in advanced manufacturing and its confirmed role in Nvidia's next-generation silicon, investors may view the company as a core long-term holding to gain exposure to secular AI growth.
• The stock's valuation at 23 times forward earnings warrants careful consideration; investors must weigh the company's clear technological lead against persistent geopolitical risks, which the market may be underpricing.
• Monitor the progress of CoWoS capacity expansion and adoption rates for the Rubin platform, as these are key leading indicators that will validate the company's elevated growth forecasts and current market valuation.