Taiwan Semiconductor Manufacturing Company TSM has seen its stock tumble nearly 16.9% over the past month, rattled by a broader market sell-off. Investor sentiment has soured amid escalating trade war concerns, with tariffs raising fears of increased costs and dampening consumer purchasing power. While the pullback has hit tech stocks particularly hard, including industry giants like NVIDIA Corporation NVDA, Broadcom Inc. AVGO and Advanced Micro Devices, Inc. AMD, the long-term outlook for TSM remains undeniably strong.

One-Month TSM Stock Price Performance

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Rather than viewing this decline as a warning sign, investors should recognize it as a compelling opportunity to buy into a world-class semiconductor leader at a discount.

AI Boom Fuels TSM’s Long-Term Growth

Taiwan Semiconductor stands at the epicenter of the artificial intelligence (AI) revolution, supplying cutting-edge chips that power AI workloads and high-performance computing (HPC). The demand for AI accelerators — ranging from graphics processing units (GPUs) to custom silicon — is skyrocketing, with companies like NVIDIA, Broadcom and Advanced Micro Devices relying heavily on TSM’s manufacturing expertise.

In 2024, AI-related revenues tripled, making up a mid-teen percentage of Taiwan Semiconductor’s total revenues, and the momentum is far from over. The company expects AI-related sales to double again in 2025, with an impressive 40% compound annual growth rate over the next five years. This positions TSM as the undisputed backbone of AI-driven technological advancements.

More importantly, the transition to 3nm and 2nm process nodes will be crucial in maintaining its leadership. These advanced nodes ensure higher efficiency and performance, reinforcing Taiwan Semiconductor’s position as the go-to foundry for cutting-edge semiconductor manufacturing.

Capacity Expansion Strengthens TSM’s Market Leadership

Taiwan Semiconductor is not only growing but also scaling at an unprecedented pace. The company is set to invest between $38 billion and $42 billion in capital expenditures in 2025, far outpacing its $29.8 billion investment in 2024. The bulk of this spending — around 70% — is focused on advanced manufacturing processes, ensuring TSM stays ahead of the curve.

A key aspect of this expansion strategy is geographic diversification. Taiwan Semiconductor’s Arizona facility has already begun high-volume production, with additional fabs under construction in Japan and Germany.

While some investors worry about the higher costs of these overseas operations, management has assured that the impact on gross margins will be minimal, around 2-3 percentage points annually. These investments are a proactive move to secure supply-chain resilience and meet increasing customer demand, solidifying Taiwan Semiconductor’s competitive advantage.

Financial Performance Confirms TSM’s Strength

Taiwan Semiconductor’s latest earnings report highlights just how dominant the company remains. In the fourth quarter of 2024, revenues surged 37% year over year to $26.88 billion, beating estimates by $504 million. EPS came in at $2.24, surpassing expectations, while gross margins improved to 59%, reflecting better cost efficiencies.

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The company’s 3nm and 5nm process nodes accounted for 60% of total wafer revenues, reinforcing its leadership in advanced semiconductor manufacturing. High-performance computing, a major growth driver fueled by AI adoption, contributed 53% to the overall revenues.

Taiwan Semiconductor expects its first-quarter 2025 revenues to range between $25 billion and $25.8 billion, implying a strong 34.7% growth rate at the midpoint. The company’s ability to maintain robust margins (57%-59% guidance) despite industry-wide cost pressures further underscores its financial resilience.

Taiwan Semiconductor also has a strong track record of outperforming expectations. The company has beaten the Zacks Consensus Estimate for earnings in each of the past four quarters, with an average surprise of 7.6%. For 2025, EPS is projected to grow by 30.7% to $9.20, signaling strong earnings momentum.

Valuation: A Rare Opportunity to Buy TSM Stock at a Discount

Despite its stellar growth prospects, Taiwan Semiconductor stock now trades at a forward P/E of just 17.87 — well below the Zacks Computer and Technology sector average of 23.4. Given Taiwan Semiconductor’s dominant market position, AI-driven growth tailwinds and ongoing expansion, this valuation represents an attractive entry point. Investors looking to capitalize on the AI revolution and semiconductor megatrend should see this dip as an opportunity rather than a red flag.

TSM Forward 12-Month P/E Ratio

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Conclusion: Buy TSM Stock Now

Market sell-offs create rare buying opportunities, and Taiwan Semiconductor’s current dip is no exception. The company’s leadership in AI chip manufacturing, aggressive capacity expansion and strong financials make it a compelling investment. While short-term volatility may persist, TSM’s long-term growth trajectory remains intact.

With a discounted valuation and booming AI-driven demand, now is the time to buy Taiwan Semiconductor stock before the market realizes its full potential. TSM carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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