TSMC rises 30% as valuation falls below its five-year average

By Grace Kim

TSMC generated a record $46.72 billion in third-quarter revenue, up 41.2% year over year, while its shares rose 30% over the past 12 months. The stock remains 19% below its Oct. 5 high. TIKR described the operating performance as TSMC’s best year yet.

What changed at TSMC?

TSMC reached the top of its revenue forecast in July, raised its 2026 outlook and lifted its capital-expenditure budget to $60 billion through $64 billion. Third-quarter gross margin reached 66.4%. TSMC expects about 44% growth in 2026 and guides fourth-quarter revenue to $52.3 billion through $54.3 billion. CFO Wendell Huang pointed to “the steep ramp-up of our 2-nanometer technology.”

Why did memory stocks outperform?

Micron Technology shares rose 239% over the year as memory prices drove quarterly revenue up 379% year over year to $54.23 billion in the quarter ended Sept. 3. TSMC does not receive the same pricing lift. Huang said recent price increases only covered inflation in tools, materials and labor. Memory prices can fall as quickly as they rose. TSMC’s growth instead comes from customers moving to newer chips.

What triggered the October selloffs?

TSMC’s decline from its Oct. 5 high accelerated in two sector selloffs, one on Oct. 22 after Lam Research reported and another on Oct. 30 after Intel did. Intel shares remained 46% higher over the year. The company expects fourth-quarter revenue of $15 billion through $16 billion as PC sales slow. CEO Lip-Bu Tan said the priority was freeing supply “to meet extraordinary demand for our Xeon family.”

TIKR argued that Intel’s own server-chip capacity shortage will hinder its effort to win foundry business from TSMC.

How much could higher CoWoS prices matter?

Taiwan’s Commercial Times reported in late October that TSMC was preparing CoWoS price increases of up to 20%, a plan the chipmaker had not confirmed. TIKR estimated packaging at a little more than 10% of revenue this year. A full 20% increase across that business would add roughly 2% to sales.

AMD reported record third-quarter data-center revenue of $8.5 billion, up 97%. Its 54% gross margin trailed TSMC’s 66.4%, while AMD shares rose 88% over the year. TIKR used those results to argue that major customers could absorb higher packaging prices.

Is 16 times forward earnings a discount?

TSMC traded at 16 times forward earnings on Nov. 2, below its five-year average of 18 times and its July 2024 peak of 25 times. It stood near 23 times at the end of June. Since then, the 2027 earnings-per-share estimate rose 16%. Analysts expect $23.39 for 2027, more than double 2025’s $10.65. Bernstein raised its target to $600 from $554 on Nov. 4.

TIKR said its analyst tracking covered 35 analysts. TIKR’s analyst recommended adding to TSMC, citing rising estimates, customer pricing and the lower valuation. More than 500,000 investors use TIKR’s research service.

What could break the investment case?

Most of TSMC’s spending this year goes to fabs that begin production in 2028 and 2029, leaving estimates exposed if AI spenders cut budgets before then. TSMC revenue fell 4.5% in NT dollars in 2023, the year after its last record capital expenditure.

October revenue was due within roughly a week, according to the source. The fourth-quarter guide implied monthly revenue of NT$554 billion through NT$576 billion. TSMC’s mid-January report will provide 2027 guidance. A light guide would remove the argument that 16 times forward earnings offers a bargain.

How did TIKR frame its analysis?

TIKR offers a free valuation model that can forecast a share price in less than a minute from Wall Street consensus estimates or from user-selected assumptions. The analysis draws on TIKR Terminal investment data and analyst estimates. TIKR says the article is not investment advice and may omit recent company news. It also says it holds no position in any stocks mentioned.

The mid-January guidance will test whether rising estimates and scarce capacity can sustain the pullback case before new fabs contribute output. A light guide would weaken the argument that 16 times forward earnings is a bargain.