Is TSMC Still a Bargain After 46% Rally and Soaring AI Chip Demand in 2025?

Feeling hesitant about Taiwan Semiconductor Manufacturing stock? You are not alone. With its meteoric rise of 46.4% year-to-date and an astonishing 381.3% return over the last three years, it is only natural to wonder whether it is the moment to buy in, hold tight, or take some profits off the table. Over just the past week, the stock notched up another 5.1%, and in the past month alone, it surged 12.3%. Long-term investors have been handsomely rewarded, as a 257.2% gain in the last five years shows. These impressive moves are not just random luck, either.

TSMC’s performance seems closely tied to rising optimism across global semiconductor markets. With surging demand for advanced chips and recent headlines about supply chain investment, investors appear convinced that the company remains at the center of technological innovation. This has reshaped risk perceptions and fueled buying enthusiasm, making the price climb seem more than justified in the eyes of some market watchers.

Still, growth is only one piece of the puzzle. If you are weighing the next step, valuation is key. On a 6-point scorecard measuring undervaluation across several financial checks, TSMC lands a score of 3. So, by about half the usual measures, the stock still looks undervalued despite its run. The trick is understanding which approaches tell the real story. There is a smarter way to judge TSMC’s true value that we will get to by the end of this article. But first, let’s dig into the major valuation methods one by one.

Taiwan Semiconductor Manufacturing delivered 48.6% returns over the last year. See how this stacks up to the rest of the Semiconductor industry.

The Discounted Cash Flow (DCF) model estimates a company’s true worth by projecting its future free cash flows and then discounting those back to today’s values. This approach aims to capture the business’s underlying earning power, regardless of day-to-day stock price swings.

For Taiwan Semiconductor Manufacturing, the latest trailing twelve months Free Cash Flow stands at approximately NT$804.8 Billion. Analysts provide detailed projections for the next five years, anticipating significant annual growth in free cash flows. For example, estimates suggest Free Cash Flow could rise to around NT$2,774.8 Billion in 2029, with further growth extrapolated beyond that point. These figures are all quoted in New Taiwan Dollars (NT$), reflecting the company’s reporting currency.

Based on the 2 Stage Free Cash Flow to Equity model, the estimated intrinsic value for TSMC’s shares is NT$291.97. Compared to the current share price, the implied intrinsic discount indicates the stock is about 1.1% overvalued. This puts it very close to fair value using today’s long-term cash flow outlook.

Continue Reading