This Semiconductor Titan Is Quietly Dominating the AI Boom

Taiwan Semiconductor Manufacturing Co., Ltd. (NYSE: TSM) has solidified its position at the heart of the AI hardware revolution.

As the world’s leading contract chipmaker, TSMC is the company behind the world’s most powerful processors, including those from Nvidia, Apple, and AMD, and it's not slowing down.

The stock is up sharply in 2025, trading near $229 and brushing against its 52-week high. Yet the growth story remains far from over.

A 39% year-over-year jump in Q2 revenue, expectations for AI revenue to more than double this year, and a high-confidence 2nm roadmap suggest that TSMC is only just beginning to realize the scale of its opportunity.

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Strategic Leadership in Advanced Nodes

TSMC's competitive edge is built on its advanced manufacturing capabilities.

Its 7nm and smaller nodes now make up over 70% of total wafer revenue, underscoring unmatched execution at the bleeding edge of chip fabrication.

The upcoming launch of its 2nm process, expected in the second half of 2025, has customers lining up.

Major clients, such as Nvidia and Apple, are already designing next-generation chips around this node, and early indicators suggest that adoption could outpace both 5nm and 3nm technologies.

TSMC is also aggressively expanding its U.S. footprint, now committing over $165 billion to Arizona facilities.

These fabs will enable TSMC to serve American clients with locally manufactured advanced nodes, alleviating geopolitical risk while reinforcing its role as a trusted supplier in national tech strategy.

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AI Acceleration: Revenue Doubling, Capacity Scaling

TSMC’s AI story is gaining scale and speed.

The company expects AI-related revenue to more than double in 2025, fueled by surging demand for accelerator chips and advanced packaging services.

CoWoS (chip-on-wafer-on-substrate) technology is crucial for delivering high performance in high-end GPUs, and TSMC is set to double its packaging capacity this year.

Needham analysts now estimate that AI could drive $90 billion in annual sales by 2029, representing a 3– to 4–fold increase from current levels.

Importantly, much of this growth is expected to come from a richer silicon content per chip, not just volume, which will boost margins and average selling prices per wafer. 

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Financial Strength and Valuation

TSMC continues to impress on both top- and bottom-line metrics:

• Q2 2025 revenue: NT$934 billion (~$32B), up 39% YoY

• Q1 2025 net income: $10.97B, up 60% YoY

• Gross margin: Stable near 58%, despite overseas expansion costs

• Cash reserves: ~$50B, offering flexibility for capex and dividends

While June revenue dipped sequentially due to seasonal factors, first-half revenue surged 40% year-over-year, keeping the company firmly on pace for full-year guidance of mid-20% growth.

Analysts forecast earnings to grow from $7.04 in 2024 to $12.92 by 2027.

At a 25x forward multiple, TSM shares could command a price around $325 by early 2027, representing over 40% upside from current levels. 

Risks and Considerations

TSMC isn’t without headwinds. Margins are expected to compress slightly in Q2 due to startup costs at U.S. fabs. There are also macro concerns:

• AI hardware demand could normalize in 2026 before ramping again

• Intel Foundry Services and Samsung are aggressively investing in advanced node capacity

• China-Taiwan tensions remain a persistent geopolitical risk

• High capital intensity means consistent reinvestment is required to maintain leadership

Nonetheless, TSMC’s balance sheet, scale, and customer integration provide strong protection against most of these threats.

Outlook and Price Targets

Wall Street remains bullish:

• Needham price target: $270

• Consensus analyst target: $243

• 2027 bull case: $325

• Dividend yield: 1.26%, with steady capital return potential

TSMC’s July 17 earnings call will provide further insight into cost structures, U.S. ramp progress, and AI-specific order growth.

If guidance remains firm, there’s potential for another round of upward revisions.

Building the Backbone of AI

Taiwan Semiconductor is enabling the entire AI compute stack.

With unmatched leadership in advanced manufacturing, close integration with industry leaders, and a strong global expansion plan, TSMC is arguably the most critical company in the AI economy.

As high-performance computing demand surges across industries, investors looking for a durable compounder at the infrastructure layer should keep TSMC firmly on their radar, and in their portfolios.