Taiwan Semiconductor Stock (TSM) Great Growth and Good Value in Q2 2025

Taiwan Semiconductor’s (NYSE:TSM) Q2 2025 earnings reaffirm the company's dual promise: blazing growth and solid value. As the world’s leading semiconductor foundry, TSMC continues to ride the surge in AI and high-performance computing (HPC), delivering exceptional financial results that validate its long-term momentum. In this article we will dive into Taiwan Semiconductor recent earnings, stock performance & valuation, growth potential, and the risks investor should consider.

About Taiwan Semiconductor

Founded in 1987 by Morris Chang, TSMC pioneered the “pure-play” semiconductor foundry model, focusing solely on manufacturing chips for fabless designers. Headquartered in Hsinchu, Taiwan, it produces cutting-edge semiconductors using advanced nodes 3 nm, 5 nm, 7 nm, and beyond for giants like Apple, Nvidia, AMD, Qualcomm, and Broadcom. The firm supports a full spectrum of services, chip fabrication, packaging, R&D, and design collaboration, firmly placing it at the core of the global semiconductor ecosystem.

Taiwan Semiconductor Financial Performance

In Q2 2025, Taiwan Semiconductor (TSMC) delivered outstanding financial results, reflecting its strong momentum amid growing demand for advanced chips. The company reported quarterly revenue of $31.94 billion, a 54.19% increase from $20.7 billion in Q2 2024. Earnings per share (EPS) for the quarter surged 66.89% to $2.47, up from $1.48 a year ago. On a trailing twelve-month (TTM) basis, revenue reached $116.35 billion, up 55.13% from $74.97 billion in the prior year, while TTM EPS rose 52% to $8.77 compared to $5.77. TSMC also demonstrated robust free cash flow generation, with TTM free cash flow per share rising 46.8% to $5.73, up from $3.91 in the same period last year. Profitability remained strong, with a gross profit margin of 58.58%, a net profit margin of 42.92%, and a free cash flow margin of 19.92%. The company’s return on assets (ROA) stood at an impressive 20.84%, and return on equity (ROE) was 34.87%, indicating highly efficient capital utilization. With a conservative debt-to-equity ratio of just 0.2, TSMC maintains a solid financial position.

Over the past five years, Taiwan Semiconductor’s revenue has grown at a 23% CAGR, net income at 26.3%, and free cash flow at 27.4%. This indicates that Taiwan Semiconductor has been a consistent performer in the past and is also projected to continue growing in the future.

Taiwan Semiconductor Fiscal 2025 Financial Forecast

Looking ahead, analysts project revenue for full-year 2025 to reach $123.63 billion, representing a 40.68% increase over 2024's $87.88 billion. Non-GAAP EPS for 2025 is expected to hit $9.77, up 38.84% from $7.04 in 2024. Reflecting investor confidence, analysts have given TSMC a “Strong Buy” rating, with an average price target of $263.28, suggesting a potential upside of 9.52%. The most optimistic price target stands at $306, implying a potential gain of 27.28% from current levels.

TSM Stock Price Performance and Valuation

At the time this article was written, the stock was trading at $240.40 per share, reflecting a 39.8% gain over the past year, well ahead of the S&P 500’s 13.5% increase during the same period. Over the past five years, TSMC shares have soared 262%, far surpassing the S&P 500’s 95% gain, highlighting the company’s sustained growth and investor confidence. 

In addition to capital appreciation, the stock also offers a modest dividend yield of 0.88%, providing additional return. From a valuation perspective, TSMC remains attractively priced relative to its growth potential. Its price-to-sales (P/S) ratio stands at 8.74 on a trailing twelve-month (TTM) basis and Forward P/S of 8.25. The stock’s non-GAAP price-to-earnings (P/E) ratio is 27.41 TTM and 24.6 forward, which are reasonable given the company’s projected EPS growth of nearly 39% in 2025. Additionally, the price-to-free-cash-flow (P/FCF) ratio is 25.13.

Based on Fiscal.ai data, if we look at the valuation over the past five years, the forward P/S and forward P/E are above the average, while the P/FCF is below the average. Although the overall valuation is higher, the forward P/E remains at a reasonable level, as TSMC is projected to grow its business by more than 30%.

Taiwan Semiconductor Growth Potential

Taiwan Semiconductor growth prospects remain strong, driven by several factors.

• AI and High-Performance Computing Dominate the Revenue Mix
  Demand from generative AI accelerators, data-center GPUs, and custom ASICs propelled Taiwan Semiconductor Manufacturing Company’s (TSMC) high-performance computing (HPC) platform to represent 60% of total revenue in Q2 2025, significantly surpassing smartphone-related revenue at 27%. This marks a structural shift, with major AI clients such as Nvidia, AMD, and hyperscale cloud providers increasingly relying on TSMC’s cutting-edge 3 nm and 5 nm process nodes, both experiencing double-digit sequential revenue growth.
  Leveraging this AI-driven momentum, TSMC’s management projects a full-year 2025 revenue increase of approximately 30% in U.S. dollar terms, indicating substantial room for continued expansion in its AI and HPC business lines. This trend cements TSMC’s role as a critical enabler in the global AI semiconductor ecosystem.
• Doubling CoWoS and Other Advanced-Packaging Capacity
  Taiwan Semiconductor Manufacturing Company (TSMC) is set to double its CoWoS (Chip-on-Wafer-on-Substrate) advanced packaging capacity to about 75,000 wafers per month by the end of 2025 to meet surging demand for AI and high-performance chips. This expansion responds to current supply shortages as advanced packaging becomes a greater bottleneck than lithography in chip production.
  Nvidia alone has secured approximately 70% of TSMC’s 2025 CoWoS-L capacity for its Blackwell GPUs, ensuring high fab utilization and strong margins for TSMC. With eight new advanced packaging fabs planned across its global network, CoWoS revenue is expected to exceed 10% of TSMC’s total corporate sales in 2025, underpinning packaging as a significant standalone growth pillar. This expansion is crucial as AI workloads drive demand for larger, more complex multi-chip packages.
• Record Capital Expenditure and Global Footprint Expansion
  In 2025, Taiwan Semiconductor Manufacturing Company (TSMC) has allocated a record US$38–42 billion in capital expenditure, its highest ever to expand its global manufacturing footprint. This massive investment will fund new leading-edge fabs across Taiwan, Japan, and Europe, as well as the construction of a six-fab “gigacluster” in Arizona, where the fourth facility will produce next-generation N2 and A16 processes. TSMC’s cumulative investment in the United States now totals US$165 billion, reflecting a strategic shift to diversify geopolitical risk and capitalize on government incentives. By building fabs closer to major customers in North America, TSMC enhances supply chain resilience and strengthens relationships with key partners. At the same time, this expansion enables TSMC to maintain its unmatched scale and technology leadership in semiconductor manufacturing.

Risk to Consider

While TSM Stock looks attractive, we should be mindful of potential risks.

• Geopolitical and China-Taiwan Tensions
  The largest and most critical risk is the geopolitical tension between Taiwan and China. TSMC's advanced chip manufacturing capacity is almost all located in Taiwan, very close to mainland China, which has expressed ambitions to reunify Taiwan by force if needed. Any military conflict or disruption here could halt TSMC’s local production entirely, severely impacting the global semiconductor supply chain and causing massive economic fallout. The so-called "Silicon Shield" argument suggests that TSMC’s importance may protect Taiwan for now, but the geopolitical risk remains a significant tail risk
• U.S.-China Trade Policies and Export Controls
  TSMC faces risks from U.S. export restrictions designed to limit China’s access to advanced semiconductor technology, including bans on shipments and tariffs. These could reduce TSMC’s revenues from the Chinese market (which currently accounts for around 7-12% of total revenue) and disrupt its relationships with key customers in China. The complexity is growing with the evolving trade tensions and export controls affecting chip sales, especially for AI and automotive chips.
• Operational Complexity and Margin Pressure from Global Expansion
  TSMC’s highest-margin and highest-yield chip production remains mainly in Taiwan. Expansion of fabrication plants abroad (such as in the U.S.) comes with lower yields, higher operational complexity, and reduced profitability. This expansion is necessary to reduce geopolitical risks and serve global customers but is expected to gradually dilute gross margins by 2-3% annually.

Read More: ASML Holding Stock (ASML) Strong Growth and Good Value in Q2 2025

Conclusion

TSMC stands out as a rare combination of strong growth and solid value. Its impressive Q2 2025 financial results, robust profitability, and leading position in advanced chip manufacturing underscore its long-term potential. With a history of outperforming the market, reasonable valuations, and growing demand for AI and high-performance computing, TSMC offers a compelling investment case. While risks exist, the company’s fundamentals and future outlook make it a recommended buy for investors seeking sustained growth in the semiconductor sector.