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.
Result: ABOUT RIGHT
Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Taiwan Semiconductor Manufacturing.
TSM Discounted Cash Flow as at Oct 2025
Simply Wall St performs a valuation analysis on every stock in the world every day (check out Taiwan Semiconductor Manufacturing’s valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.
For a profitable and established company like Taiwan Semiconductor Manufacturing, the Price-to-Earnings (PE) ratio is a tried-and-true benchmark. It works well because it compares the current share price with the company’s earnings, helping investors judge whether the stock offers good value relative to its profitability.
When assessing PE ratios, it is important to remember that higher growth rates and lower risk profiles often justify a higher PE. In contrast, slower-growing or riskier companies typically deserve lower multiples. In other words, what counts as a “fair” PE is shaped by factors like future earnings prospects, company stability, and overall industry sentiment.
TSMC currently trades at a PE ratio of 23.9x. This compares to an industry average of 35.9x and a peer group average of 67.0x, indicating the stock trades at a noticeable discount to both its sector and closest competitors. However, those benchmarks are often blunt tools as they do not factor in nuances like TSMC’s specific growth rate or risk profile.
This is where Simply Wall St’s proprietary “Fair Ratio” comes into play. Think of the Fair Ratio as a customized benchmark that calculates what PE you should expect for TSMC, based on its unique mix of earnings growth, margins, industry trends, company size, and risk. It goes further than a straight comparison with peers and offers a more meaningful gauge for fair value.
TSMC’s Fair Ratio stands at 43.5x. Its current PE of 23.9x is materially below this, hinting at a significant undervaluation even after considering growth and risk factors. For investors, this suggests the stock could have substantial upside left if these fundamentals persist.
Result: UNDERVALUED
NYSE:TSM PE Ratio as at Oct 2025
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.
Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply the story you believe about a company’s future, brought to life through your assumptions for key numbers such as revenue, margins, and fair value, not just what the market or analysts think. Narratives make it easy to connect the bigger picture (how the world is changing, company strategies, industry shifts) to a detailed financial forecast, allowing you to set your own fair value estimate based on your unique perspective.
On Simply Wall St’s Community page (used by millions of investors), Narratives are accessible tools that help you see how your personal viewpoint compares to others, and they dynamically update whenever new news or earnings reports are released. By comparing your Fair Value to the current Price, Narratives provide timely insight into whether it might be time to buy, sell, or hold.
For Taiwan Semiconductor Manufacturing, for example, one investor may have a Narrative projecting stable growth with a fair value of $118.4 per share based on continued geopolitical stability, while another expects much lower returns if risk factors play out differently. This shows just how differently you can interpret the same company.
Do you think there’s more to the story for Taiwan Semiconductor Manufacturing? Create your own Narrative to let the Community know!
NYSE:TSM Community Fair Values as at Oct 2025
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include TSM.
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