Taiwan Semiconductor Manufacturing stock has delivered a very large 354.7% return over the past 3 years, and the latest valuation checks now point to a company that screens as undervalued on earnings multiples but only earns a mixed overall value score.

• The 354.7% return over 3 years highlights how strongly expectations have shifted around Taiwan Semiconductor Manufacturing, so today’s price is being judged against a much higher bar than a few years ago.
• Large capital commitments to expand advanced chip capacity in the US and strengthen its AI packaging capabilities can support future cash generation, while potential export controls on AI chips to China may cap how much value investors are willing to ascribe to those projects.
• The broader checks are mixed rather than one sided, with Taiwan Semiconductor Manufacturing scoring 3 out of 6 on valuation tests, so it does not clearly stand out as either a bargain or an obviously stretched stock.

The issue now is whether Taiwan Semiconductor Manufacturing’s current price fairly reflects that mix of strong past returns, heavy investment plans, and rising policy and sector risks.

Is Taiwan Semiconductor Manufacturing Still Cheap on Earnings?

The P/E ratio is a useful way to look at Taiwan Semiconductor Manufacturing because earnings remain a key reference point for how the market prices its chipmaking capacity today. The stock currently trades on a P/E of 34.0x, which is less than half the Semiconductor industry average of 71.4x and also below the wider peer group average of 73.0x. That puts Taiwan Semiconductor Manufacturing at a discount on earnings compared with many other listed chip companies.

On a more tailored view, a fair P/E ratio that reflects Taiwan Semiconductor Manufacturing’s size, margins and risk profile is estimated at 61.2x, almost double the present 34.0x multiple. Despite recent headlines around export controls and sector pullbacks, the market is still pricing Taiwan Semiconductor Manufacturing meaningfully below where this framework suggests it might trade based on its earnings power.

On earnings, Taiwan Semiconductor Manufacturing stock currently screens as undervalued relative to both its sector and an adjusted fair P/E benchmark.

The Taiwan Semiconductor Manufacturing Narrative: What Would Justify Today's Price?

For Taiwan Semiconductor Manufacturing, Simply Wall St Narratives sit between the current P/E puzzle and the question of what the stock might be worth under different futures by spelling out which combinations of growth, margins and earnings would support a higher or lower price than today. Instead of stopping at a single model output, they lay out the business conditions that figure relies on, so you can watch how reality lines up over time on the Community page.

Community views on Taiwan Semiconductor Manufacturing sit on opposite ends of the spectrum, framing the same data as either opportunity or uncompensated risk.

Bull case: roughly fairly valued

"The meat moving the needle right now is CoWoS packaging. TSMC is ramping up capacity with this packing to hit 125k per month by 2026…"

Bear case: 17% overvalued

"That tension, between the most magnificent business economics I have ever studied and the most sobering geopolitical risk I have ever priced, is the entire intellectual challenge of owning TSMC…"

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

The Bottom Line

Taiwan Semiconductor Manufacturing screens as undervalued on current earnings multiples, but the broader checks look mixed rather than clearly supportive. The key issue is whether today’s P/E discount reflects a genuine opportunity or instead prices in heavy capital spending, policy risk and the higher bar set after a very large recent share price move. From here, the debate largely rests on whether Taiwan Semiconductor Manufacturing can sustain the earnings strength implied by that tailored fair P/E without a meaningful rise in perceived risk, or whether the market is correctly keeping a lid on the valuation multiple.

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.