• If you are wondering whether Taiwan Semiconductor Manufacturing (TSMC) is still reasonably priced after a strong run, the key question is how its current share price stacks up against its underlying fundamentals.
• The stock last closed at US$387.44, with returns of 3.3% over 7 days, 14.5% over 30 days, 21.2% year to date, 147.9% over 1 year, 387.7% over 3 years and 245.4% over 5 years. This naturally puts valuation in the spotlight.
• Recent headlines have focused on TSMC's central role in global semiconductor supply and its position in advanced chip manufacturing. This helps explain why the stock has been so closely watched. At the same time, media coverage around capital spending plans, capacity expansion and industry demand has shaped how investors think about the balance between growth opportunities and risk.
• TSMC currently has a valuation score of 3 out of 6. The sections that follow will compare different valuation approaches and will also point to a broader way to think about what this price actually reflects by the end of the article.

Approach 1: Taiwan Semiconductor Manufacturing Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business could be worth today by projecting its future cash flows and discounting them back to a present value.

For Taiwan Semiconductor Manufacturing, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections in NT$. The latest twelve month Free Cash Flow is NT$941,727.04m, which is under NT$1b and therefore sits in the hundreds of billions range. Analyst and extrapolated estimates see Free Cash Flow reaching NT$3,982,543.84m in 2035, with interim projections such as NT$1,440,142.24m in 2026 and NT$2,858,568.79m in 2029, with later years extrapolated by Simply Wall St.

After discounting these projected cash flows, the model arrives at an estimated intrinsic value of US$243.37 per share. Compared with the recent share price of US$387.44, the DCF output implies the stock is around 59.2% above this intrinsic estimate, which points to a rich valuation on this model alone.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Taiwan Semiconductor Manufacturing may be overvalued by 59.2%. Discover 61 high quality undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Taiwan Semiconductor Manufacturing Price vs Earnings

For profitable companies like Taiwan Semiconductor Manufacturing, the P/E ratio is a useful way to relate what you pay per share to the earnings the business generates. It helps you see how much the market is willing to pay for each dollar of profit.

What counts as a "normal" or "fair" P/E depends on how fast earnings are expected to grow and how risky those earnings are perceived to be. Higher growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually points to a lower P/E.

TSMC currently trades on a P/E of 27.85x, compared with a Semiconductor industry average of about 49.70x and a peer group average of 64.95x. Simply Wall St also calculates a Fair Ratio of 41.08x, which reflects factors such as earnings growth, profit margins, industry, market cap and company specific risks.

This Fair Ratio is more tailored than a simple comparison with peers or the industry because it blends these company and industry characteristics into a single benchmark. Comparing 27.85x with the Fair Ratio of 41.08x suggests the shares are priced below this customised valuation yardstick.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Taiwan Semiconductor Manufacturing Narrative

Earlier the article mentioned that there is an even better way to understand valuation, so this is where Narratives come in as a simple way for you to attach a clear story to the numbers you see for Taiwan Semiconductor Manufacturing.

A Narrative on Simply Wall St lets you set out your view of the company and then connect that story to specific assumptions for future revenue, earnings and margins. These roll into a Fair Value that you can compare directly with the current share price.

These Narratives sit inside the Community page on Simply Wall St, where millions of investors share different views. The platform keeps each Narrative updated when fresh information such as news or earnings is added, so your thesis does not stay frozen in time.

For TSMC, one investor might focus on CoWoS packaging, N2 rollout and AI demand and arrive at a Fair Value of US$450 per share. Another might put more weight on geopolitical risk, margins and discount rate assumptions and land closer to US$168. By setting up or following these Narratives you can see whether a Fair Value above or below the current US$387.44 price supports a buy, hold or sell decision for you.

For Taiwan Semiconductor Manufacturing however we will make it really easy for you with previews of two leading Taiwan Semiconductor Manufacturing Narratives:

These sit at opposite ends of the spectrum, so you can quickly see how different investors connect the same facts to very different conclusions on value and risk.

Fair value: US$400.00 per ADR

Implied undervaluation versus the last close of US$387.44: 3.15%

Revenue growth input used in this Narrative: 76.64%

• Frames TSMC as the central pillar of the global semiconductor ecosystem, with a leading position in advanced nodes and a large share of AI and high performance computing related demand.
• Highlights strong recent financial results, high margins and sizeable capacity expansion plans across Taiwan, the U.S., Japan and Germany, funded largely from internal cash generation.
• Recognises risks around geopolitics, currency and customer concentration, but views the business model, balance sheet and diversification of fabs as sufficient to support a positive view on the shares at current levels.

Fair value: US$381.00 per ADR

Implied overvaluation versus the last close of US$387.44: 1.69%

Revenue growth input used in this Narrative: 70.28%

• Emphasises TSMC's exceptional economics, including high gross and operating margins, strong return on equity and large free cash flow from advanced process leadership and packaging capabilities.
• Sets out detailed concerns about concentration of leading edge capacity in Taiwan, the potential impact of a severe geopolitical event and the margin effect of more expensive overseas fabs in the U.S., Japan and Germany.
• Argues that, given these risks, a relatively small discount to the author's base case fair value does not offer enough margin of safety, so a lower entry price would be required to justify a more positive stance on the stock.

If you want the full context behind these summaries, including the detailed assumptions and risk checks that sit underneath them, See what the community is saying about Taiwan Semiconductor Manufacturing.

Do you think there's more to the story for Taiwan Semiconductor Manufacturing? Head over to our Community to see what others are saying!

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.