Taiwan Semiconductor Manufacturing (TSM) is back in focus after recent share price swings, with the stock showing a 1.5% decline on the day but a positive pattern over longer periods.

Those short term share price moves sit within a stronger trend, with a 30 day share price return of 11.66% and a 90 day share price return of 26.37%. Meanwhile, the 1 year total shareholder return of 115.64% and very large 3 year total shareholder return of around 3.3x point to momentum that has attracted growing attention around Taiwan Semiconductor Manufacturing's role in high performance computing and AI related chip demand.

If AI hardware is on your radar, this could be a moment to see what else is out there via our screener of 35 AI infrastructure stocks. It is a straightforward way to spot other chip and infrastructure names riding similar themes.

After a run like this, the key question is whether Taiwan Semiconductor Manufacturing still offers value or if the current share price already reflects years of expected growth. Is there a genuine opportunity here, or has the market priced in the future?

Most Popular Narrative: 7.7% Undervalued

According to the most followed narrative, Taiwan Semiconductor Manufacturing's fair value of $400 sits above the last close of $369.11, which raises an obvious question about what supports that gap.

TSMC is the central pillar of the global semiconductor ecosystem, powering the AI revolution with unmatched scale, cutting-edge process technology, and disciplined execution. With record profits, dominant client base, and massive expansion underway, both in Taiwan and abroad, it stands as a low-risk way to own the AI infrastructure wave.

Want to see what sits behind that $400 fair value? The narrative leans on rapid revenue expansion, strong profitability, and a future earnings multiple usually reserved for market leaders. Curious which specific assumptions keep that valuation above today's price? The full story is in the detailed numbers.

Result: Fair Value of $400 (UNDERVALUED)

However, the bullish story could be challenged if geopolitical tensions disrupt TSMC’s global operations, or if heavy capital spending fails to match future chip demand.

Another View: Cash Flows Tell a Different Story

While the popular narrative points to a fair value of $400 and an undervalued label, our DCF model takes a more cautious stance. On that view, Taiwan Semiconductor Manufacturing at $369.11 sits above an estimated future cash flow value of $289.81, which suggests the shares look overvalued instead. So which lens do you trust when the story and the cash flows do not quite line up?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Taiwan Semiconductor Manufacturing for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 45 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this mix of optimism and caution feels familiar, now is the time to look at the numbers yourself and decide where you stand. Start with 4 key rewards and 1 important warning sign.

Looking for more investment ideas?

If TSMC has sharpened your focus, do not stop here. Use the screener to spot fresh ideas before they move out of reach.

• Target quality at a fair price by scanning a list of 45 high quality undervalued stocks that pair solid fundamentals with more modest expectations.
• Strengthen your income stream by reviewing our hand picked 13 dividend fortresses that offer higher yields with a focus on resilience.
• Lower your stress level by filtering for 76 resilient stocks with low risk scores that score well on stability so you can focus on the long term story.

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.