Taiwan Semiconductor Manufacturing Company (TSMC) continues to be viewed as the primary beneficiary of the global artificial intelligence boom. This perspective persists even amid recent share price volatility and operational challenges at its Japanese facility. As retail investors seize on the stock’s temporary weakness, the company’s management is reevaluating major capital expenditure plans, with a critical decision looming: whether the leap to cutting-edge 2-nanometer production in Japan justifies the substantially higher costs.
Wall Street’s Unwavering Confidence
Analyst sentiment remains decidedly bullish. As of December 19, the consensus rating among seven analysts is a “Buy,” with an average price target of $355 USD. Specific firms have reinforced this optimism:
– Bernstein reaffirmed an “Outperform” rating with a $330 price target.
– Barclays upgraded its rating to “Overweight” and raised its price target to $355.
Bernstein highlights the expansion of high-end packaging capacity, specifically the CoWoS (Chip on Wafer on Substrate) technology, as a key growth driver. TSMC plans to increase this capacity to approximately 125,000 wafers per month by the end of 2026, aiming to meet soaring demand from AI industry leaders like Nvidia.
Retail Investors See a Buying Opportunity
Recent share price softness, attributed largely to profit-taking within a fluctuating U.S. tech sector, has been met with increased investor participation. The number of TSMC shareholders in Taiwan reached 1.88 million by December 19, marking the highest level since late April and a weekly increase of nearly 32,000.
Notably, retail interest surged. The count of holders with “Odd Lots”—positions smaller than 1,000 shares—jumped by over 25,000 to around 1.4 million. Larger positions also grew: the category of 1,000 to 5,000 shares added close to 5,900 investors, and even the group of major shareholders holding at least 1 million shares expanded by 12 to 1,541. This activity indicates buyers outweighed sellers despite a noticeable dip in the company’s market capitalization.
A Potential Overhaul for the Japan Expansion
TSMC’s strategic focus is shifting to its second fabrication plant in Kumamoto, Japan. Reports from local media and analysis firm TrendForce suggest the company is considering a significant plan revision: scrapping the originally intended 6nm production entirely and launching directly with more advanced 2nm technology.
The rationale stems from financial performance. The existing Japanese subsidiary, JASM, reported a loss of NT$6.2 billion (approximately $200 million USD) for the first half of 2025. In contrast, the Arizona facility generated a profit of NT$4.5 billion (about $150 million USD) during the same period while running 4nm production. Industry sources also point to weak demand for 6nm chips, particularly from the automotive sector. A faster transition to 2nm could enhance long-term facility utilization and profitability, but at a steep price.
The Substantial Financial Implications
The potential strategic shift carries a heavy capital burden:
– Original investment plan for 6nm in Kumamoto: roughly $10 billion USD.
– Investment required for a direct jump to 2nm: more than $25 billion USD.
Should investors sell immediately? Or is it worth buying TSMC?
Consequently, the willingness of the Japanese government to provide further subsidies becomes crucial. A significant portion of the output would likely be destined for export, as local demand for state-of-the-art AI chips remains limited. Additional government support is therefore seen as a practical prerequisite for making the 2nm transition economically viable.
Operational Strength and Clear AI Focus
TSMC’s robust operational results underpin the market’s optimism. For the third quarter of 2025, revenue hit $33.1 billion USD, a 10.1% increase from the previous quarter. The gross margin reached a strong 59.5%. Earnings per share came in at $2.92 USD, comfortably surpassing market expectations of $2.59 USD. Year-over-year revenue surged 40.1%, driven predominantly by AI and high-performance server chips.
Management’s guidance for Q4 2025 targets revenue between $32.2 and $33.4 billion USD, with gross margins projected between 59.0% and 61.0%. The focus remains squarely on highly profitable, advanced manufacturing nodes.
Market Dominance and AI-Driven Demand
TSMC controls an estimated 72% of the global semiconductor foundry market, cementing its position as the clear industry leader. This dominance is especially pronounced in the most advanced process technologies critical for AI data centers.
Key growth pillars include:
– Production on 3nm process nodes.
– 3D packaging via CoWoS for high-performance AI and server chips.
– The planned introduction of 2nm technology starting in 2026.
This places TSMC at the very center of the AI infrastructure supply chain. The company’s current valuation—a forward P/E ratio of approximately 29.7 and a market capitalization of about $1.5 trillion USD—reflects investor confidence in its long-term strategic role.
Performance Context and Forward Look
Despite recent share price pressure, TSMC’s stock has demonstrated strong performance over extended periods. It shows a gain of over 25% for the past twelve months and an advance of nearly 27% year-to-date. This reflects the market’s ability to balance short-term volatility against the company’s structurally advantaged position within the AI cycle.
The next significant milestone is the quarterly report due in January 2026. This update should clarify whether TSMC can maintain its rapid growth momentum in AI and provide more concrete details on the plans for the 2nm facility in Kumamoto. How the company navigates the substantial required investments and potential subsidy negotiations will be critical for the efficient expansion of its global manufacturing network.
Ad
TSMC Stock: Buy or Sell?! New TSMC Analysis from December 22 delivers the answer:
The latest TSMC figures speak for themselves: Urgent action needed for TSMC investors. Is it worth buying or should you sell? Find out what to do now in the current free analysis from December 22.
TSMC: Buy or sell? Read more here...
