The research team has upgraded Taiwan Semiconductor Manufacturing Company (TSM) to a Buy rating, citing a recent pullback in valuation and signs that growth is set to reaccelerate. After cutting the stock earlier in the year, the analyst now believes that the prior downgrade was premature. Current consensus forecasts point to mid‐20% annual revenue growth over the next three years, driven by sustained demand for advanced AI chips and continued share gains in 5-nanometer and below. At the same time, the stock’s forward price‐to-earnings multiple has contracted by roughly 15% from its late-2025 peak, creating an attractive entry point for long-term investors.

In the fourth quarter, TSM’s revenue growth decelerated to low-20% year-over-year, reflecting temporary bottlenecks at key production nodes. However, gross margin expanded from 59.9% in fiscal 2025 to 62.3%, while operating margin jumped from 50.8% to 54.0%. Earnings per share rose 35% compared to the prior year, and wafer shipments into high-performance computing customers increased by 18%. These results underscore TSM’s ability to convert incremental revenue into profit even when output growth is limited by factory utilization.

To address production constraints, TSM is allocating an additional US$6 billion to expand capacity at its Hsinchu fab and dedicating US$12 billion toward its Arizona Phase II facility. The Taiwan expansion will add 40,000 12-inch wafer starts per month by mid-2027, while the Arizona build-out is scheduled to come online in early 2028 with an initial 30,000 wafer-per-month capacity. Together, these projects aim to lift total monthly capacity by more than 25%, securing the supply needed for next-generation AI accelerators and mobile SoCs. Management’s long-term capital expenditure guidance remains at US$52–56 billion annually through 2027, reflecting confidence in sustained end-market demand.