Demand for chips remains strong, raising questions on Taiwan Semiconductor valuation

Taiwan Semiconductor Manufacturing Co. just told the market it expects revenue to grow slightly more than 40% in 2026. That’s the kind of number that makes growth investors salivate and value investors reach for the antacids.

The world’s largest contract chipmaker raised its guidance on the back of relentless demand for advanced AI chips, and its July 2026 sales figures backed up the optimism: NT$467.58 billion for the month, a 45% jump compared to the same period last year. But with shares trading in the $400 to $430 range and forward price-to-earnings multiples sitting around 21-22x, the question Wall Street can’t stop asking is whether all that good news is already baked into the price.

The numbers behind the AI chip juggernaut

The company lifted its capital expenditure guidance to between $60 billion and $64 billion, a substantial increase from earlier estimates. Most of that spending is being driven by sustained AI investment from heavyweight customers like Nvidia, who need TSMC’s most advanced manufacturing nodes to produce the GPUs powering everything from large language models to autonomous driving systems.

To put TSMC’s dominance in perspective, the company commands roughly 73% of the foundry market in advanced semiconductor nodes as of Q1 2026.

CEO C.C. Wei reinforced the company’s posture in June, emphasizing TSMC’s commitment to meeting customer demand during what he characterized as an ongoing AI boom.

TSMC plans to start raising chip prices by up to 10% beginning in 2027, a move designed to offset increasing expenses for materials and equipment.

The valuation debate gets louder

The forward P/E ratio of 21-22x might look reasonable for a company growing revenue at 40%-plus. But the trailing multiple tells a different story, sitting near 31x as of mid-August 2026. That gap between trailing and forward earnings reflects how much of the bull case depends on TSMC continuing to execute flawlessly.

Some analysts have started flagging overvaluation risks, arguing that the stock’s elevated multiples already price in the most optimistic growth scenarios. Spending $60 billion to $64 billion in a single year is a bet that demand stays white-hot.

Adding a short-term wrinkle, SoftBank has reportedly been divesting much of its TSMC stake.

Geopolitics and expansion add complexity

TSMC’s Arizona facilities are part of a broader geographic diversification strategy, one that gained urgency as US policymakers pushed for domestic semiconductor manufacturing capacity. Building cutting-edge fabs on American soil is expensive, and those costs are a meaningful contributor to the ballooning capex budget.

The planned price increases starting in 2027 could reshape margin dynamics across the industry. TSMC’s customers will either absorb higher costs or pass them downstream. With 73% market share in advanced nodes, customers don’t have many alternatives.

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