TSMC just posted its sixth consecutive record profit quarter and raised its growth outlook for the full year, but the stock has quietly returned to where it was trading a month ago. Something in the details makes investors think, and it goes further…
Semiconductor manufacturing in Taiwan (NYSE: TSM | TSM Price Prediction) is trading at $422.40. The stock has been back and forth to roughly where it started a month ago, even though the company just posted its sixth straight quarter of record profit.
TSMC is the world’s largest dedicated contract foundry. In 2025, it has built chips for 534 customers, and nodes 7nm and below now account for 79% of wafer revenue. Shares hit a 52-week high of $487.47. They then fell 7.77% over the past week, including a 1.77% drop on results day.
Record results and outlook raised to 21x forecast earnings
Third-quarter EPS came in at $4.60, beating the consensus of $4.46. Revenue of $46.7 billion exceeded the high end of forecasts. Management raised its full-year growth forecast to about 44%, up from nearly 30% at the start of the year. The fourth-quarter forecast of $52.3 billion to $54.3 billion implies 58% year-over-year growth at the midpoint.
This growth costs a forward P/E of 21 and a PEG ratio of 0.858. The average EPS estimate for 2027 rose from $19.6630 90 days ago to $21.9251, with nine upward and zero downward revisions over the past month. Management says demand for AI shows “no signs of slowing” and remains “higher than supply.”
Margin dilution and increased investment threaten the rally
Gross margin fell from 67.7% to 66.4% as the 2nm ramp diluted profits. Overseas manufacturing plants will reduce their gross margin by about 2% this year, and management expects that decline to reach 3% to 4%. Capital spending is forecast at $60 billion to $64 billion for 2026, with spending from 2026 to 2028 expected to be “even higher than the last three years.”
Management also called itself “cautious” heading into 2027 and flagged weakness in consumer and price-sensitive markets. Add to that a current P/E of 32, a beta of 1.239 and Taiwan’s geopolitical risk, and a deeper decline is possible.
Why the 2nm margin ramp will decide the next move
Shares are below the 50-day moving average of $434.05, but above the 200-day moving average of $393.24, indicating that the market is still looking for direction. Execution remains strong, but margin development depends on how quickly 2nm yields mature, while N2 capacity more than doubles in 2027. The fourth-quarter report will show whether margins hold near the 66% guided midpoint.
Wall Street sees an increase of almost 37% despite a difficult week
From the current price of $422.40, the consensus target of $578.22 implies an upside of 36.9%. Price targets are estimates and sentiment is unbalanced. Out of 21 analysts:
- Strong buy: 6
- Buy: 14
- Hold: 1
- Sell: 0
TSMC has gained 2.36% over the past month, ahead of the S&P 500’s 1.9%. Year to date, the stock is up 40.07%, while the index has gained 13.18%. The stock is trading 13.3% below its 52-week high.
What could take stocks back to their highs from $422
At $422.40, Taiwan Semiconductor faces several near-term catalysts.
This decline appears to be a reaction to headlines about margins as growth continues to strengthen. Revenue forecasts have been raised twice this year and analysts continue to raise estimates for 2027. Over the next two to three quarters, the main catalysts will be the fourth quarter report and N2 capacity expansion. Arizona’s second manufacturing plant also begins volume production in the third quarter of 2027.
Two things could nullify the thesis: a gross margin falling below the low forecast range of 65%, or hyperscalers withdrawing their AI investments. The flip side is that the same expansion elevates a whole group of suppliers beyond the foundries themselves (we covered seven, from power to cooling, in a free report). Unless capex cracks, upcoming earnings reports will test whether a leader growing at 21x forward earnings is undervalued.
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