In-Depth Analysis of TSMC (TSM) Investment Value: Growth Momentum of AI Chip Business and Long-Term Market Position

Based on the comprehensive data collection and analysis above, I present to you an in-depth research report on

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TSM released its Q4 2026 earnings report on January 15, 2026, which once again confirms the continued surge in demand for AI chips [1][3]. Key highlights are as follows:

Indicator	Data	YoY Change
Quarterly Revenue	$33.311 Billion	+25.5% YoY
Net Profit	$16.0 Billion	+35% YoY
Gross Margin	62.3%	Above Expectations
EPS	$3.09	9.57% Above Expectations
2026 CapEx Guidance	$54-$56 Billion	32% Increase from 2025’s $41 Billion

Revenue from the High-Performance Computing (HPC) segment (including AI accelerators) has reached of total revenue, officially surpassing smartphones as the largest revenue source [3]. This structural shift marks the completion of TSMC’s strategic transformation from the “Mobile Era” to the “AI Era”.

Management provided guidance on the earnings call that

[1]. This growth is driven by the following factors:

• NVIDIA Blackwell Architecture
  : TSMC is the exclusive foundry for H100/H200/GH200; approximately 2 million H200 GPUs have been pre-ordered in the Chinese market [2]
• AMD MI300 Series
  : Volume production is ramping up rapidly, with expected increased orders on the N3 process in 2026
• Custom Chips by Cloud Computing Giants
  : Apple’s Baltra (2027), Google TPU, Microsoft Maia, and Amazon Trainium all rely on TSMC’s advanced manufacturing processes [4][5]

: TSMC’s N2 process uses a GAA nanosheet architecture, delivering 10-15% performance improvement or 25-30% power reduction compared to the 3nm process [6]. Known customers include:

• Apple (expected for iPhone 2027 chips)
• NVIDIA (Rubin architecture GPU)
• AMD, Qualcomm, Broadcom, Intel, etc. [6]

: 2026 capital expenditure is expected to reach $54-$56 billion, mainly used for:

• Arizona wafer fab (to have 2nm capacity in 2028)
• Expansion of advanced packaging (CoWoS) capacity in Taiwan
• Ramping up N2 production lines at the Kaohsiung fab

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Valuation Metric	Value	Industry Comparison
Market Capitalization	$1.77 Trillion	3rd Largest Semiconductor Company Globally
P/E (TTM)	28.36x	Higher than Industry Average of ~25x
P/B	9.00x	Higher than Historical Average
Stock Performance (YTD)	+6.89%	+65.20% Increase Over the Past Year

Based on three scenario analyses using the DCF model [0]:

Scenario	Intrinsic Value	vs. Current Price
Bear Case	$1,806.68	+428.8%
Base Case	$2,022.49	+492.0%
Bull Case	$2,698.16	+689.8%
Probability-Weighted Valuation	$2,175.78	+536.9%

• WACC: 8.7%
• Terminal Growth Rate: 2.0-3.0%
• EBITDA Margin: 65.9-72.8%
• Revenue CAGR: 0-24.2%

1. Oligopoly Pattern
   : ~74% market share in advanced manufacturing processes (7nm and below) [7]
2. AI Super Cycle
   : Order visibility extends to 2027
3. Strong Pricing Power
   : Gross margin of over 62% proves strong bargaining power
4. Abundant Free Cash Flow
   : 2024 FCF of approximately $87 Billion

1. Valuation Premium
   : 28x P/E already reflects most growth expectations
2. Geopolitical Risks
   : Cross-Strait tensions may impact the supply chain
3. Customer Concentration
   : Top 10 customers account for approximately 70% of revenue

: Although the current valuation is at a historical high, considering the structural growth of AI chip demand and TSMC’s absolute technological leadership, the valuation has , but upside potential depends more on the overall development of the AI industry rather than valuation expansion.

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Company	Market Share (Q3 2025)	Technology Node	Strengths/Weaknesses
TSMC	60%	2nm Mass-Produced	Technology Leadership, High Yield, Perfect Ecosystem
Samsung	18%	2nm GAA	Vertically Integrated, but Yield <40% [8]
Intel	6%	18A (~1.8nm)	IDM 2.0 Transformation, Yield Exceeds 60% [8]
SMIC	5%	7nm	Main Player in China’s Domestic Substitution

• SF2 (2nm) Yield is Only Approximately 40%
  , far lower than TSMC N2’s ~80% [8]
• Loss of Major Customers
  : Qualcomm and AMD have moved flagship chip orders back to TSMC [6]
• Disadvantage of Vertical Integration
  : Competes with customers (e.g., smartphones vs. Apple/Xiaomi)

Samsung’s only strategic value lies in its

, which can provide HBM4 advanced packaging solutions, but it is difficult to shake TSMC’s dominant position in high-end logic chips in the short term.

: According to estimates by KeyBanc analysts, Intel’s 18A process yield has exceeded [8], approaching mass production thresholds. This means:

• Potential Customers
  : May take on some AI chip orders from non-Chinese customers
• In-House Products
  : Intel Xeon and GPUs will switch to in-house foundry services
• Market Landscape
  : May surpass Samsung to become the second-largest foundry

• IDM 2.0 transformation requires several years of verification
• Capacity ramp-up speed is slower than TSMC’s
• Customer concerns about being a “frenemy” (both competitor and supplier)

SMIC continues to expand in 7nm and above nodes, mainly serving

. Due to U.S. export controls, SMIC cannot obtain EUV lithography machines, and the gap with TSMC in advanced manufacturing processes continues to widen.

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Company	Self-Developed Chips	Manufacturing Node	Impact Assessment
Apple	A Series/M Series/Baltra	3nm (N3E) → 2nm	Deeply Tied to TSMC
Google	TPU v5/v6	4nm → 3nm	Key Foundry Customer
Microsoft	Azure Maia	5nm → 3nm	Incremental Demand
Amazon	Trainium/Inferentia	5nm → 3nm	Continuous Order Expansion
Meta	MTIA	5nm	Customized Demand

1. Customer Diversification
   : Transformed from mobile/PC to cloud computing/AI; customer base increased from 4 (Fab 18, 2020) to 45 (Fab 18, 2025) [4]
2. Expanded Order Scale
   : NVIDIA is expected to surpass Apple as the largest N3 customer in Q4 2027 [4]
3. Reduced Pilot Production Costs for Advanced Nodes
   : Major customers like Apple bear the early yield learning costs for new nodes [4]
4. Enhanced Pricing Power
   : HPC customers are less price-sensitive and accept TSMC’s premium pricing

1. Risk of Order Loss
   : If large customers increase the penetration of self-developed chips, they may reduce reliance on third-party GPUs
2. Customization vs. Standardization
   : Tech giants prefer custom chips, which may compress the general-purpose GPU market
3. Bargaining Power Shift
   : In the long term, customers may demand more favorable prices or exclusive capacity

: Self-developed chips by tech giants are because:

• Self-developed chips still require TSMC’s foundry services (Apple accounts for ~20% of TSMC’s revenue [4])
• The total growth of AI chips is much faster than the speed of customer internalization
• TSMC’s manufacturing process leadership makes it a “must-choose” rather than an “optional” supplier

: If the AI chip market shifts from “general-purpose GPU-dominated” to “custom ASIC-dominated”, and major customers complete their self-developed closed loops, TSMC may face pressure from increased order concentration and reduced bargaining power.

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Dimension	Assessment	Rating
AI Growth Momentum	Strong, CAGR 50%+, visibility to 2027	★★★★★
Valuation Rationality	High but supported by fundamentals	★★★☆☆
Competitive Landscape	Expanded technological leadership, deeper moat	★★★★★
Impact of Customer Self-Development	Short-term positive, long-term needs monitoring	★★★★☆
Comprehensive Rating	Buy/Hold	★★★★☆

• Current Price
  : $341.64
• Analyst Consensus Target Price
  : $377.50 (+10.5%) [0]
• DCF Probability-Weighted Valuation
  : $2,175.78 (+536.9%)
• Reasonable Valuation Range
  : Based on 25-30x forward P/E, the 2026 reasonable range is $380-$420

1. Macroeconomic Risks
   : If a bubble bursts in AI capital expenditure, orders will be directly affected
2. Geopolitical Risks
   : Escalation of U.S.-China tech war may impact high-end chip shipments
3. Increased Competition Risk
   : If Intel’s 18A enters mass production successfully, it may divert some orders
4. Technology Route Risk
   : Changes in Chiplet/advanced packaging technology routes may alter the competitive landscape

• Quarterly changes in AI revenue share in earnings reports
• Comparison of actual CapEx expenditure vs. guidance
• Order guidance from major customers (NVIDIA/Apple/AMD)
• Technology yield progress of competitors (Samsung/Intel)

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[1] Yahoo Finance - “Chip stocks jump as Nvidia supplier TSMC dismisses bubble fears” (https://finance.yahoo.com/news/chip-stocks-jump-as-nvidia-supplier-tsmc-dismisses-bubble-fears-142119829.html)

[2] Yahoo Finance - “Nvidia Seeks TSMC Talks as China Orders Outpace H200” (https://finance.yahoo.com/news/nvidia-seeks-tsmc-talks-china-155912134.html)

[3] Business Times Online - “TSMC’s Blockbuster Results Ignite Global Chip Rally” (http://business.times-online.com/times-online/article/marketminute-2026-1-15-tsmcs-blockbuster-results-ignite-global-chip-rally-as-ai-demand-reaches-fever-pitch)

[4] SemiAnalysis - “Apple-TSMC: The Partnership That Built Modern Computing” (https://newsletter.semianalysis.com/p/apple-tsmc-the-partnership-that-built)

[5] LinkedIn - “Apple Develops In-House AI Chip ‘Baltra’ for 2027” (https://www.linkedin.com/posts/edsonbellido_ai-aiinfrastructure-apple-activity-7413278052459139072-f1at)

[6] EE Times - “TSMC to Lead Rivals at 2-nm Node, Analysts Say” (https://www.eetimes.com/tsmc-to-lead-rivals-at-2-nm-node-analysts-say/)

[7] Mordor Intelligence - “Semiconductor Foundry Market Size & Share Analysis” (https://www.mordorintelligence.com/industry-reports/semiconductor-foundry-market)

[8] Economy.ac - “Intel’s 1.8-Nanometer-Class Yield Reversal to 60%” (https://economy.ac/news/2026/01/202601286779)

[0] Jinling AI Financial Database (Real-Time Market, Financial Analysis, DCF Valuation, Technical Indicators)