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TSMC
In TrendForce’s ranking TSMC took 72.5% of foundry revenue in the second quarter of 2026, and 79% of its wafer revenue now comes from 7-nanometer and smaller chips. I value an ordinary share at NT$2,006, US$308 an ADR; the Taiwan price is 18% above that and the ADR price 40% above.
Updated Fiscal year ends 31 December29 min readPedrum Shokouhi
Strong moat
Research, not investment advice. Figures as of .
Key numbers
- Market valueNT$61,459B (calculated)NT$2,370 x 25.932B shares; US$1.89 trillion. ADR basis: US$2.24 trillion [49][50][14]
- RevenueNT$4,945B (calculated)TTM to Sep 2026; US$156.6B [14][17][21][24]
- Operating margin58.0% (calculated)TTM to Sep 2026; 3Q26 was 58.7% [14][17][21][24]
- Free cash flowNT$1,481B (calculated)TTM: operating cash flow less capex, before U.S. tax-credit receipts [14][17][21][24]
- Net cash reservesNT$2,985B (reported)30 Sep 2026: cash and securities NT$4,017B less debt NT$1,032B [15]
- 2026 capital budgetUS$60 to 64B (reported)Raised from US$52 to 56B in July 2026; 2025 was US$40.9B [16][19]
(reported)Reported in a filing (calculated)Calculated from reported figures (estimate)My estimate
The answer
- TSMC makes the chips others design, and in the twelve months to September 2026 it turned NT$4,945B of revenue into NT$2,867B of operating income, a 58.0% margin.14172124
- I value one ordinary share at NT$2,006, or US$308 an ADR, in a range of NT$887 to NT$3,056: the base case sits 13% above the company’s revenue plan for 2029 and 0.6 point under its gross margin floor (estimate).2624
- At NT$2,370.00, the Taiwan close in Q4 2026, the price sits 18% above my base value: it needs a margin before depreciation above today’s record, held for fifteen years, or revenue growth about 3 points a year faster. The margin of safety starts below NT$1,180, and the ADR at US$431.81 in Q4 2026 is 18.7% above the same share in Taiwan.49503
Six questions, one line each
- Why
- TSMC fabricates chips designed by others and took 72.5% of foundry revenue in TrendForce’s ranking for 2Q26, a share whose base TrendForce does not define; 79% of its 3Q26 wafer revenue came from 7-nanometer and smaller chips.2815 →
- The moat
- A cost and process advantage that is widening at the leading edge; the return on net plant averaged 33.1% over ten years (calculated). It has one weak point: ten customers pay 78% of revenue.5131516 →
- The advantage
- A 67.7% gross margin in 2Q26 against 25.3% to 32.5% at SMIC, UMC and GlobalFoundries, and 12 times the revenue of Samsung Foundry, the next company in TrendForce’s ranking (calculated).1728353637 →
- Management
- C.C. Wei has run TSMC since November 2013, as co-CEO until June 2018 and as sole CEO since, and owns 0.03% of the shares; revenue beat the top of the guided range in three of the last four quarters, and NT$7.0 trillion of plant spending over ten years raised revenue 4.0 times (calculated).51417212439 →
- Margin of safety
- At NT$1,180 the bear case is worth NT$887 discounted at 10.5%, 25% under the price, and the bear cash flows still return 8.4% a year over fifteen years; the base case returns 15.5% a year (estimate). NT$1,180 is below the NT$1,375 close of November 2025, the lowest of the past year.495033 →
The business
TSMC makes chips from designs its customers provide. It fabricates the wafers, packages the most advanced ones with its 3DFabric stacking technology, and tests them.5 In 2025 it made 12,682 products with 305 process technologies for 534 customers, and shipped about 15 million 12-inch-equivalent wafers.14524
In the twelve months to September 2026 depreciation and amortization were 15.1% of revenue, research and development 6.0% and capital spending 33.3%, which is 2.2 times depreciation; operating margin was 58.0% (calculated).1415172124 Revenue grew from NT$947.9B in 2016 to NT$3,809B in 2025, 16.7% a year, and was NT$4,945B in the TTM.51314
Revenue and operating income
Fiscal years to 31 December, NT$ billions
- Revenue NT$3,809B in 2025
- Operating income NT$1,936B
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | TTM Sep 2026 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue (reported) | NT$947.9B | NT$977.4B | NT$1,031B | NT$1,070B | NT$1,339B | NT$1,587B | NT$2,264B | NT$2,162B | NT$2,894B | NT$3,809B | NT$4,945B |
| Operating income (reported) | NT$378.0B | NT$385.6B | NT$383.6B | NT$372.7B | NT$566.8B | NT$650.0B | NT$1,121B | NT$921.5B | NT$1,322B | NT$1,936B | NT$2,867B |
TSMC defines its market as Foundry 2.0: all logic wafer manufacturing, packaging, testing and mask making. That industry grew 16% in 2025 against TSMC’s 35.9% in US dollars. In January TSMC forecast 14% industry growth for 2026, when it guided close to 30% for itself; in October it guided around 44%.2616
What it sells
TSMC reports one segment. By the customer’s product, high performance computing, which includes AI accelerators, was NT$2,193B of 2025 revenue, 58% of the total, up 48%; smartphones were 29% and falling.5 In 3Q26 high performance computing was 68% of revenue and smartphones 21%.15 Advanced nodes carry the mix: 3-nanometer chips were 33% of wafer revenue in 3Q26, 5-nanometer 28% and the new 2-nanometer 8%.15
Where the revenue came from
2025, NT$ billions. Bar length is revenue; the share is of the segments' total.
- Segment revenue, 2025 NT$3,809B
Show the numbers
| Segment | Revenue | Share | Growth |
|---|---|---|---|
| High Performance Computing (reported) | NT$2,193B | 57.6% | +48.5% |
| Smartphone (reported) | NT$1,111B | 29.2% | +10.5% |
| Internet of Things (reported) | NT$191.0B | 5.0% | +15.4% |
| Automotive (reported) | NT$186.7B | 4.9% | +34.0% |
| Digital consumer electronics (reported) | NT$48.0B | 1.3% | +0.1% |
| Others (reported) | NT$79.6B | 2.1% | +33.8% |
Share of net revenue by platform
Percent of net revenue. 2023 to 2025 from the 20-F; 3Q25 and 3Q26 from the management report.
| Platform | 2023 | 2024 | 2025 | 3Q25 | 3Q26 |
|---|---|---|---|---|---|
| High Performance Computing | 43% | 51% | 58% | 57% | 68% |
| Smartphone | 38% | 35% | 29% | 30% | 21% |
| Internet of Things | 8% | 6% | 5% | 5% | 4% |
| Automotive | 6% | 5% | 5% | 5% | 4% |
| Digital consumer electronics | 2% | 1% | 1% | 1% | 1% |
| Others | 3% | 2% | 2% | 2% | 2% |
Source 20-F 2025; 3Q26 management report [5][15]. Figures as reported.
Share of wafer revenue by technology
Percent of total wafer revenue. 2023 to 2025 from the 20-F; 3Q26 from the quarterly management report.
| Technology | 2023 | 2024 | 2025 | 3Q26 |
|---|---|---|---|---|
| 2-nanometer | 0% | 0% | 0% | 8% |
| 3-nanometer | 6% | 18% | 24% | 33% |
| 5-nanometer | 33% | 34% | 36% | 28% |
| 7-nanometer | 19% | 17% | 14% | 10% |
| 16/20-nanometer | 11% | 8% | 7% | 6% |
| 28-nanometer | 10% | 7% | 7% | 6% |
| 40/45-nanometer | 6% | 4% | 3% | 2% |
| 65-nanometer | 6% | 4% | 4% | 4% |
| 90-nanometer to 0.13 micron | 3% | 3% | 2% | 1% |
| 0.15 micron and above | 6% | 5% | 3% | 2% |
| 7-nanometer and below | 58% | 69% | 74% | 79% |
The 20-F groups 16 and 20-nanometer and the older nodes differently; rows here merge them to match the management report. 2-nanometer entered volume production in the fourth quarter of 2025. Source 20-F 2025; 3Q26 management report [5][15]. Figures as reported.
Who pays
The ten largest customers were 70% of revenue in 2023, 76% in 2024 and 78% in 2025.5 The 20-F does not name them. Its segment note gives letters: Customer A was 12% of revenue in 2024 (NT$352.3B) and 19% in 2025 (NT$727.0B), a rise of 106% in a year, and Customer B fell from 22% to 17% as its revenue rose 3% (calculated).5 The largest customer changed in 2025.
Customer concentration
Share of net revenue. The 20-F does not name the customers; the letters are its own, from the segment note.
| 2023 | 2024 | 2025 | |
|---|---|---|---|
| Customer A | under 10% | 12% (NT$352.3B) | 19% (NT$727.0B) |
| Customer B | 25% (NT$546.6B) | 22% (NT$624.3B) | 17% (NT$645.2B) |
| Customer C | 11% (NT$241.2B) | under 10% | under 10% |
| Largest customer in the year | 25% | 22% | 19% |
| Second largest customer | 11% | 12% | 17% |
| Ten largest customers | 70% | 76% | 78% |
Item 18, Note 38, for the lettered rows; Item 3, risk factors, for the ranked rows. Customer A was not a 10% customer in 2023, was 12% in 2024 and became the largest in 2025 at 19%; Customer B was the largest in 2023 and 2024 and fell to second. The ten largest customers rose from 70% to 78% in two years. Source 20-F 2025 [5]. Figures as reported.
By where the customer is headquartered, North America was 75% of 2025 revenue and 79% in 3Q26; China fell from 12% in 2023 to 9% in 2025 and 5% in 3Q26.515 Substantially all sales are in US dollars, and more than half of capital spending is in other currencies.5
Net revenue by where the customer is headquartered
Percent of net revenue. This is the customer's home country, not where the chips ship or are used.
| Region | 2023 | 2024 | 2025 | 3Q26 |
|---|---|---|---|---|
| North America | 68% | 70% | 75% | 79% |
| Asia Pacific (excluding China and Japan) | 8% | 10% | 9% | 10% |
| China | 12% | 11% | 9% | 5% |
| Japan | 6% | 5% | 4% | 3% |
| Europe, Middle East and Africa | 6% | 4% | 3% | 3% |
Source 20-F 2025; 3Q26 management report [5][15]. Figures as reported.
Where the plant is
80.0% of TSMC’s noncurrent assets were in Taiwan at the end of 2025, 13.9% in the United States, 3.0% in Japan and 1.7% in China (calculated).5 TSMC and TSMC Arizona together booked 99.3% of consolidated net sales and 97.5% of net income (calculated).5
Where the long-lived assets are
Noncurrent assets (property, plant and equipment, right-of-use assets, intangibles and other) by location, NT$ billions, at 31 December.
| Location | 2024 | Share | 2025 | Share |
|---|---|---|---|---|
| Taiwan | 2,613.1 | 77.2% | 3,102.3 | 80.0% |
| United States | 541.8 | 16.0% | 540.1 | 13.9% |
| Japan | 126.6 | 3.7% | 117.4 | 3.0% |
| China | 82.4 | 2.4% | 65.0 | 1.7% |
| Europe, Middle East and Africa | 19.2 | 0.6% | 51.5 | 1.3% |
| Total | 3,383.1 | 100% | 3,876.3 | 100% |
Amounts are from Item 18, Note 38; shares are calculated. Separately, TSMC and TSMC Arizona together (the 20-F's "Obligor Group") booked net sales of NT$3,782.6B, 99.3% of the consolidated NT$3,809.1B, and net income of NT$1,653.3B, 97.5% of consolidated net income of NT$1,695.1B (calculated; Item 5, Summary Financial Information of the Obligor Group): the parent and its Arizona arm hold nearly all of the group's sales and profit. Source 20-F 2025 [5]. Figures calculated from reported data.
Cycle or structure
Two things drive the outlook: demand for AI chips and the speed at which TSMC adds capacity. On demand, TSMC says AI accelerator revenue was in the high teens as a percentage of 2025 revenue and forecast it to grow at a mid-to-high-50s percent rate a year from 2024 to 2029. In October the CEO said the rate would probably be higher and gave no new number.2616 The 2026 revenue guide has risen at each call.24211714
How the 2026 revenue outlook moved
Full-year 2026 revenue growth in US dollars, as stated at each quarterly call.
| Call | Date | 2026 revenue growth guide | 2026 capital budget |
|---|---|---|---|
| 4Q25 | 15 Jan 2026 | Close to 30% | US$52 to 56B |
| 1Q26 | 16 Apr 2026 | Above 30% | Towards the high end of US$52 to 56B |
| 2Q26 | 16 Jul 2026 | Slightly above 40% | Raised to US$60 to 64B |
| 3Q26 | 15 Oct 2026 | Around 44% | US$60 to 64B reiterated |
Source 4Q25 release and presentation; 1Q26 release and presentation; 2Q26 release and presentation; 3Q26 release and presentation; 3Q26 call; 2Q26 call; 1Q26 call; 4Q25 call [24][21][17][14][16][19][23][26]. Figures as reported.
The CEO also said consumer and price-sensitive end markets face rising component prices, and that TSMC is being prudent in its planning for 2027.16 Analysts on the call raised four limits on AI spending: data-center power, funding, HBM memory and advanced packaging. The CEO said TSMC sends its own teams to check data-center build-out and power in the United States, and that the feedback is good so far.16
The last down year was 2023: revenue fell 4.5% in NT dollars and 8.7% in US dollars, operating income 17.8% and gross margin 5.2 points (calculated).540 The 20-F says a significant portion of operating costs is fixed.5 I read demand for leading-edge capacity as structural, because customers plan years ahead and TSMC sees their roadmaps. The spending that pays for that demand is the cyclical part. My bear case is an AI pause in which high performance computing, 68% of revenue now against 43% in 2023, falls 25% while the plant is already built.515
The moat
I think TSMC’s moat is a cost and process advantage: know-how in making the most advanced chips, paid for by scale that no rival matches, and held in place by what it costs a customer to redesign a chip for another factory. It is widening at the leading edge. It has one weak point: ten customers pay 78% of revenue.5
The best single measure is the return on the plant, because a foundry’s margin is the return on a large asset base. Over the last ten years TSMC earned between 25.5% and 46.4% a year on its average net plant, 33.1% on average, after a flat 17% tax (calculated).513 In the TTM it earned 59.3% on average plant at the same 17% tax (calculated).51524 Each NT$1 of net plant added brought NT$0.55 of after-tax operating profit from 2019 to 2025 and NT$0.48 from 2016 to 2025 (calculated).513 2019 was the weakest year for margin and 2025 the strongest, which flatters the first figure, and plant is carried at historical cost, which flatters both.
Return on net plant, 2016 to the TTM
Operating income after a flat 17% tax over average net property, plant and equipment
Show the numbers
| Value | |
|---|---|
| 2016 (calculated) | 33.9% |
| 2017 (calculated) | 31.1% |
| 2018 (calculated) | 29.8% |
| 2019 (calculated) | 25.5% |
| 2020 (calculated) | 32.4% |
| 2021 (calculated) | 30.6% |
| 2022 (calculated) | 39.9% |
| 2023 (calculated) | 26.6% |
| 2024 (calculated) | 34.8% |
| 2025 (calculated) | 46.4% |
| TTM Sep 2026 (calculated) | 59.3% |
Ten years of returns on plant
Margin before depreciation is operating income plus depreciation and amortization, as a share of revenue. Return on net plant is operating income after a flat 17% tax over the average of opening and closing net property, plant and equipment.
| Year | Margin before depreciation | Depreciation and amortization | Operating margin | Net plant per US$1 of revenue | Return on net plant | Capital spending |
|---|---|---|---|---|---|---|
| 2016 | 63.5% | 23.6% | 39.9% | 1.05 | 33.9% | 35% |
| 2017 | 66.1% | 26.6% | 39.4% | 1.09 | 31.1% | 34% |
| 2018 | 65.6% | 28.4% | 37.2% | 1.04 | 29.8% | 31% |
| 2019 | 61.6% | 26.8% | 34.8% | 1.26 | 25.5% | 43% |
| 2020 | 67.1% | 24.8% | 42.3% | 1.16 | 32.4% | 38% |
| 2021 | 67.6% | 26.6% | 40.9% | 1.24 | 30.6% | 53% |
| 2022 | 68.8% | 19.3% | 49.5% | 1.19 | 39.9% | 48% |
| 2023 | 67.2% | 24.6% | 42.6% | 1.42 | 26.6% | 44% |
| 2024 | 68.6% | 22.9% | 45.7% | 1.12 | 34.8% | 33% |
| 2025 | 68.9% | 18.1% | 50.8% | 0.97 | 46.4% | 33% |
| TTM Sep 2026 | 73.1% | 15.1% | 58.0% | 0.92 | 59.3% | 33% |
| Average, 2016 to 2025 | 66.5% | 24.2% | 42.3% | 1.15 | 33.1% | 39% |
Net property, plant and equipment is from the SEC XBRL facts for 2015 to 2024 and the 2025 Form 20-F (NT$3,691.8B). Depreciation and amortization is depreciation plus amortization from the XBRL facts through 2023 and the 20-F's own totals for 2024 (NT$662.8B) and 2025 (NT$688.1B); the TTM figure is NT$746.3B from the quarterly reports. The TTM return uses the average of net plant at 30 September 2025 (NT$3,499.3B, source 24) and 30 September 2026 (NT$4,526.5B, source 15). Plant is at historical cost. Source 20-F 2025; SEC XBRL facts; 20-F 2024; 3Q26 release and presentation; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation; 3Q26 management report [5][13][6][14][17][21][24][15]. Figures calculated from reported data.
The moat, source by source
Evidence from the filings and the calls, and the direction I read in it. The sources that bind come first.
| Source | Evidence | Direction |
|---|---|---|
| Process lead at the leading edge | 2-nanometer in volume production since 4Q25 with good yield; A16 in risk production in 2026; A14 planned for volume in 2028516. 7-nanometer and smaller chips were 58% of wafer revenue in 2023, 74% in 2025 and 79% in 3Q26515 | Widening |
| Revenue per wafer | Revenue rose 76% from 2023 to 2025 while wafers shipped rose 25%, so revenue per wafer shipped rose 41%, to NT$253.6 thousand on total revenue (calculated)524 | Widening; mix and price both count |
| Share of foundry revenue | TrendForce: 70.2% in 2Q25, 70.4% in 4Q25, 72.3% in 1Q26, 72.5% in 2Q26; the base of its shares is not defined45464828 | Widening slowly; four readings |
| Scale and spending | Capital spending was US$40.9B in 2025 and is budgeted at US$60 to 64B for 20262519. Intel Foundry lost US$2.1B on US$5.8B of segment revenue in 2Q26, SMIC spent US$1.8B on plant and GlobalFoundries US$0.4B293735 | Widening |
| Advanced packaging | Advanced packaging was about 8% of revenue in 2024 and slightly over 10% in 2025, and is expected in the low teens in 202626. The CEO says TSMC is in production at 5 times reticle size, moving to 9 and 14 times, and that no one else is at 5 times, a management claim; CoWoS remains the customers’ first choice16 | Widening in AI chips; short of capacity |
| Lock-in at the design stage | TSMC engages customers at least two to three years ahead26. Temporary receipts, payments customers make to retain capacity, were NT$291.1B at the end of 2024 and NT$189.9B at the end of 2025, down 35%; the 20-F says their settlement is by mutual consent5 | Mixed: lead times are long, but customers prepaid less in a supply-short year |
| Design ecosystem | Open Innovation Platform since 2008, with tools and IP ready for 3-nanometer, 2-nanometer and A16, and the 3Dblox standard contributed to the IEEE5 | Stable |
| Pricing and allocation | Gross margin rose from 46.0% in 2019 to 65.8% in the TTM (calculated)514172124. The CFO calls pricing strategic, not opportunistic; the CEO says customers may not sublet capacity2616 | Widening |
Source 20-F 2025; 3Q26 release and presentation; 3Q26 management report; 3Q26 call; 2Q26 release and presentation; 2Q26 call; 1Q26 release and presentation; 4Q25 release and presentation; 4Q25 management report; 4Q25 call; Intel Q2 2026 results; GlobalFoundries 6-K, 2Q26; SMIC 2Q26 announcement; TrendForce, 2Q25 foundry ranking; TrendForce, 4Q25 foundry ranking; Evertiq, TrendForce 2Q26 table; TrendForce, 2Q26 foundry ranking [5][14][15][16][17][19][21][24][25][26][29][35][37][45][46][48][28]. Judgements are my estimates.
Our pricing will remain strategic, not opportunistic, to earn our value.
Evidence it is widening
Mix and price. Seven-nanometer and smaller chips were 58% of wafer revenue in 2023 and 74% in 2025, and 79% in the third quarter of 2026.515 Revenue rose 76% from 2023 to 2025 while wafers shipped rose 25%, so revenue per wafer shipped rose 41% to about NT$254 thousand, on total revenue that includes mask, test and packaging (calculated).524 Gross margin went from 46.0% in 2019 to 59.9% in 2025 and 65.8% in the TTM.514172124
Share. TrendForce put TSMC at 70.2% of foundry revenue in 2Q25, 70.4% in 4Q25, 72.3% in 1Q26 and 72.5% in 2Q26: a gain of 2.3 points over four readings, none of which defines its base.45464828 In 2Q26 TSMC’s revenue grew 12.1% on the quarter against 11.5% for the top ten foundries together. TrendForce says TSMC’s 5/4-nanometer and 3-nanometer capacity stayed fully booked and 2-nanometer contributed revenue for the first time.28
Cadence. 2-nanometer entered volume production in 4Q25 with good yield, and TSMC expects the 2-nanometer family’s annual capacity to more than double in 2027.16 A14 enters risk production in 2027 and volume production in 2028. On the October call the CEO said customer activity on A14 so far is higher than it was on 2-nanometer, and that he expects A14 to be the bigger node.16
Packaging. Advanced packaging was about 8% of revenue in 2024 and slightly over 10% in 2025, and the CFO expects it in the low teens in 2026, growing faster than the company. Packaging, testing, mask making and others take 10% to 20% of the 2026 capital budget.26 The CEO said TSMC is in production at 5 times the standard reticle size, moving to 9 and 14 times, and that no one else does 5 times; that is a management claim.16 TSMC is building nearly 20 fabs worldwide, 13 of them leading-edge and advanced-packaging fabs in Taiwan.16
Evidence it is narrowing
Concentration. The ten largest customers rose from 70% to 78% of revenue in two years, and Customer A’s revenue doubled in 2025.5 A customer that large can negotiate hard, and it can also build a second source.
Capacity deposits. Some customers pay temporary receipts to retain capacity. They were NT$291.1B at the end of 2024 and NT$189.9B at the end of 2025, down 35% in a year in which the CEO says demand ran above supply; the 20-F says refund or offset is decided by mutual consent.516 I cannot tell from the filings whether the drop is prepayments being used up or customers needing to pay less to secure capacity.
Customers going direct. The 20-F says system companies increasingly design their own chips and work directly with foundries.5 On the October call an analyst asked about a large customer that manufactures too and might do more of it. The CEO answered that TSMC takes customers’ internal capacity into account and treats all of them fairly.16
Rivals. Samsung says its foundry has 2-nanometer design wins in high performance computing and plans a second generation of 2-nanometer mobile products in the second half of 2026.38 Intel has 18A-P in risk production.29 TrendForce says Samsung raised prices on 5/4-nanometer and more advanced nodes in 2Q26.28 The 20-F warns that rivals may receive subsidies that TSMC cannot reach on equal terms.5
Dilution and cost. TSMC expects the 2-nanometer ramp to cost 3 to 4 points of gross margin in the second half of 2026, and overseas fabs about 2 points in 2026 and 3 to 4 points in the next few years.1916 The CFO says tool price inflation is real.16
Ten customers pay 78% of the revenue, and the moat holds only while none of them finds a second source it trusts at the leading edge.
The competitive advantage
TSMC’s advantage is scale at the leading edge. In 2Q26 it reported revenue of US$40.2B, 12 times the revenue of Samsung Foundry (US$3.26B, TrendForce’s figure), the next company in TrendForce’s ranking, and 7 times Intel Foundry’s segment revenue (US$5.77B, which includes sales to Intel’s own product groups) (calculated).172829
TSMC against the named foundries
Second quarter of 2026, each company's own report except the share row. Intel Foundry's revenue includes sales to Intel's own product groups.
| TSMC | Samsung Foundry | SMIC | UMC | GlobalFoundries | Intel Foundry | |
|---|---|---|---|---|---|---|
| Revenue | US$40.20B | US$3.26B (TrendForce) | US$3.01B | US$2.18B | US$1.79B | US$5.77B |
| Share of foundry revenue (TrendForce) | 72.5% | 5.9% | 5.4% | 3.9% | 3.2% | not ranked |
| Gross margin | 67.7% | not reported | 25.3% | 32.5% | 28.3% | not reported |
| Operating margin | 60.3% | not reported | 17.8% (calculated) | 21.8% | 9.7% | −36.2% (calculated) |
| Capital spending | US$15.70B in the quarter; US$60 to 64B budgeted for 2026 | not in my sources | US$1.84B in the quarter | US$2B planned for 2026 | US$0.41B in the quarter | not reported |
| Advanced nodes | 2nm in volume since 4Q25 | Second-generation 2nm mobile products planned for 2H26; 2nm HPC design wins | not covered | 22/28nm was 37% of revenue | not covered | 18A-P in risk production |
Samsung does not report foundry revenue, so its figure and share are TrendForce's. Intel's operating margin is its US$2,089M segment loss over US$5,765M of revenue; SMIC's is its US$534.2M profit from operations, which includes US$112.6M of other operating income, over revenue (both calculated). Neither Samsung nor Intel reports a foundry gross margin. The 20-F (source 5) says competitors in more mature technologies are numerous and offer specialized processes. Source 2Q26 release and presentation; TrendForce, 2Q26 foundry ranking; Intel Q2 2026 results; GlobalFoundries 6-K, 2Q26; UMC 6-K, 2Q26; SMIC 2Q26 announcement; Samsung 2Q26 results; 2Q26 call; 4Q25 management report [17][28][29][35][36][37][38][19][25]. Figures as reported.
The margin gap shows the pricing power. TSMC’s gross margin was 67.7% in 2Q26, 35 to 42 points above UMC, GlobalFoundries and SMIC, and its operating margin was 60.3% against 21.8% at UMC, 17.8% at SMIC and 9.7% at GlobalFoundries (calculated).17353637 Part of the gap is node mix: the 20-F says competitors in more mature technologies are numerous and offer specialized processes, and UMC earned 37% of its revenue at 22/28-nanometer.536 The relevant comparison is at the leading edge. Intel reports a foundry segment loss (US$2.1B on US$5.8B of revenue, 36% of it) (calculated); Samsung does not report foundry revenue, so its figure is TrendForce’s. Neither reports a foundry gross margin.2928
Gross margin, second quarter of 2026
Percent of revenue, each company's own report
Show the numbers
| Value | |
|---|---|
| TSMC (reported) | 67.7% |
| UMC (reported) | 32.5% |
| GlobalFoundries (IFRS) (reported) | 28.3% |
| SMIC (reported) | 25.3% |
TSMC spent US$15.7B on plant in 2Q26, 8.6 times SMIC’s US$1.84B, the largest of the other foundries I can measure, and 38 times GlobalFoundries’ US$0.41B. It has budgeted US$60 to 64B for 2026, 31 times the US$2B UMC plans (calculated).1837353619
Where TSMC wins
TSMC wins where a chip needs the newest node, advanced packaging and volume together. High performance computing was 68% of 3Q26 revenue, and the CEO’s claim is that all the AI players work with TSMC.1516 Capacity discipline helps: the CEO said TSMC does not allow customers to sublet or auction off allocated capacity.16
Where it loses
At mature nodes competitors are numerous, and the 20-F says rivals may also pursue customers who want to diversify their supply chains.5 Samsung says it has 2-nanometer design wins in high performance computing; it names no customers or volumes.38 An analyst noted on the October call that rivals plan to adopt High-NA lithography earlier than TSMC, which plans to use it from 2030; the CEO said TSMC adopts a tool when it is mature and cost-reasonable.16
No rival publishes a leading-edge yield or a foundry margin. The gaps I can measure are 12 times Samsung Foundry’s revenue and 8.6 times SMIC’s plant spending in 2Q26.17281837
Management
C.C. Wei is chairman and chief executive. He has run TSMC since November 2013, as co-CEO until June 2018 and as sole CEO since; he became chairman in June 2024. He joined TSMC in 1998 and holds a Ph.D. in electrical engineering from Yale; he is in the 71 to 75 age band.5 He owns 7.45 million shares, 0.03%, worth about NT$17.8B or US$546M at the Taiwan price (calculated).5503 Wendell Huang has been chief financial officer since September 2019 and joined in 1999.5
Who runs it
Positions and ownership from the 2025 Form 20-F, Item 6 (shares at 18 March 2026; pay for 2025).
| Name | Role | Years at TSMC | Ordinary shares owned | 2025 pay, NT$M |
|---|---|---|---|---|
| C.C. Wei | Chairman and CEO. Co-CEO from November 2013, sole CEO from June 2018; Chairman since June 2024 | 28 | 7,452,349 | 2,422.7 |
| Wendell Huang | Senior Vice President, Finance; CFO since September 2019 | 27 | 1,811,543 | 339.5 |
| Y.P. Chyn | Executive Vice President; Co-Chief Operating Officer | 39 | 5,171,935 | in group total |
| Y.J. Mii | Executive Vice President; Co-Chief Operating Officer | 32 | 1,254,057 | in group total |
| Kevin Zhang | Senior Vice President, Business Development and Global Sales; Deputy Co-COO | 10 | 329,663 | in group total |
| All executive officers | Executive officers named in the 20-F | 60,237,681 with directors (0.23%) | 9,060.0 |
The group row covers 2025 pay for all executive officers named in the filing, including those who retired in 2025, and the shares held by directors and executive officers together, excluding the National Development Fund. Pay is the 20-F figure: salary, bonus including profit sharing, stock awards, and other pay including the long-term incentive bonus. Source 20-F 2025 [5]. Figures as reported.
Pay
Wei’s pay for 2025 was NT$2,422.7M (US$77.2M), 0.14% of net income to the parent; he owns 0.03% of the shares (calculated). Salary was 0.7% of it, bonus and profit sharing 37%, stock awards 15% and other pay, which includes a long-term incentive bonus, 47% (calculated).5 All executive officers together were paid NT$9,060.0M, 0.53% of net income (calculated).5
The 20-F does not state what the CEO’s bonus or long-term incentive measures. The articles of incorporation tie a pool of at least 1% of annual profits to all employees. For 2025 profits the 20-F lists two pools of NT$103.07B each, a business performance bonus and a cash profit sharing bonus; the accrual note covers the profit sharing line, 5.3% of operating income (calculated). Whether the business performance bonus is a second cost the filing does not say; if it is, the two together are NT$206.1B, 10.6% of operating income (calculated). Total employee benefits expense was NT$396.1B, 10.4% of revenue.5 TSMC adopted a clawback policy in August 2023 and recovered nothing in 2025.5
C.C. Wei: 2025 pay
NT$ millions, as accrued in 2025 (20-F Item 6). US$77.2M at the filing's rate.
| Salary | Bonus and profit sharing | Stock awards | Other, incl. long-term incentive bonus | Total |
|---|---|---|---|---|
| 17.3 | 895.8 | 367.1 | 1,142.5 | 2,422.7 |
Source 20-F 2025 [5]. Figures as reported.
Directors and executive officers together own 0.23% of the shares. The National Development Fund, an R.O.C. government investment fund, owns 6.38% and holds a board seat. Incentives therefore run through pay and profit sharing, with no founder stake behind them.5
Who owns the shares
Ordinary shares outstanding: 25,932,524,521 at 28 February 2026.
| Holder | Shares | Share of total |
|---|---|---|
| National Development Fund, Executive Yuan (R.O.C. government) | 1,653,709,980 | 6.38% |
| Held as ADSs (1,062,690,167 ADSs) | 5,313,450,863 | 20.5% |
| Directors and executive officers as a group (excluding the Fund) | 60,237,681 | 0.23% |
The ADS share is calculated: 5,313,450,863 over 25,932,524,521. The Fund holds a seat on the board and has sold ADSs from time to time, as the 20-F risk factors note. Source 20-F 2025 [5]. Figures as reported.
Wei’s salary was 0.7% of his 2025 pay; the rest was bonus, profit sharing, stock and a long-term incentive.5 The 20-F does not say what his bonus measures; the employee pools come from profit, so I read it as paying for profit, not return on plant. His stake of NT$17.8B is 7.3 times that year’s pay (calculated).5503 Over a cycle they kept building through the 2023 revenue fall, paid out 66% of free cash flow and bought back almost nothing.51513 Building has paid so far. I can’t see that it does at 35% of revenue.
The record against its own guidance
Revenue finished above the top of the guided range in 4Q25, 1Q26 and 3Q26, and at the top in 2Q26. Gross margin finished above the range in the first three of those quarters and inside it in 3Q26.1417212439 The 2026 growth guide rose from close to 30% to around 44% in nine months. When the demand is weaker, management says so: it is prudent about consumer markets in 2027.16
Guidance against results, last four quarters
The range TSMC gave three months earlier, then the result. Revenue in US$ billions; margins in percent.
| Quarter | Revenue guide | Revenue | Gross margin guide | Gross margin | Operating margin guide | Operating margin |
|---|---|---|---|---|---|---|
| 4Q25 | 32.2 to 33.4 | 33.73 | 59 to 61 | 62.3 | 49 to 51 | 54.0 |
| 1Q26 | 34.6 to 35.8 | 35.90 | 63 to 65 | 66.2 | 54 to 56 | 58.1 |
| 2Q26 | 39.0 to 40.2 | 40.20 | 65.5 to 67.5 | 67.7 | 56.5 to 58.5 | 60.3 |
| 3Q26 | 44.6 to 45.8 | 46.72 | 65 to 67 | 66.4 | 56 to 58 | 58.7 |
Revenue finished above the top of the range in three of the four quarters and at the top in the other. Gross margin finished above the range in three of four and inside it in 3Q26. The 4Q25 guide is from the 3Q25 release (source 39). Guide for 4Q26: revenue US$52.3 to 54.3B, gross margin 65 to 67%, operating margin 56.5 to 58.5% at NT$31.8 per US$. Source 3Q26 release and presentation; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation; 3Q25 release (6-K) [14][17][21][24][39]. Figures as reported.
The bench and the board
The board has ten directors, seven independent, among them Sir Peter Bonfield, Michael Splinter, Moshe Gavrielov, L. Rafael Reif, Ursula Burns, Lynn Elsenhans and Chuan Lin. All terms end in 2027.5 The co-chief operating officers are Y.P. Chyn, who joined in 1987, and Y.J. Mii, who joined in 1994. Four senior vice presidents were promoted on 10 February 2026, and Ray Chuang became chief executive of TSMC Arizona on 1 October 2025.5 The Compensation and People Development Committee has reviewed the succession pipeline since February 2023, and the 20-F names no successor to Wei.5
One flag: in October 2024 TSMC told U.S. and Taiwan authorities that a chip it made for one customer might have been diverted to a restricted entity. It has cooperated with information requests since, and no outcome is reported.5
Capital allocation
Management has paid out two-thirds of free cash flow and kept the rest, which is why NT$2,985B of net cash reserves sit on the balance sheet. The decision that mattered was the size of the build in 2021 to 2023, when plant spending ran at 44% to 53% of revenue. In 2023 revenue fell 4.5% and TSMC still spent NT$949.8B on plant, 44% of revenue. By 2025 revenue was 76% higher (calculated).51513
The capital allocation record
Large decisions from 2016 to 2026, what they cost and what they became.
| Decision | When | Cost | Result |
|---|---|---|---|
| Plant | 2016 to 2025 | NT$7,042B of capital spending, 39% of revenue over the ten years (calculated)513 | Revenue grew 4.0 times. Each NT$1 of net plant added brought NT$0.55 of added after-tax operating profit from 2019 to 2025 and NT$0.48 from 2016 to 2025 (calculated)513 |
| Research and development | 2016 to 2025 | NT$1,360B in all, 6.5% of revenue in 2025; US$30B over the last five years (calculated)51326 | 2-nanometer in volume production in 2025; A16 and A14 on schedule516 |
| Dividends | 2016 to 2026 | NT$2,736B paid from 2016 to 2025, 66% of free cash flow (calculated)513 | Cash dividend a share of NT$6 in 2016, NT$18 in 2025 and NT$24 in 202619 |
| Buybacks | 2024 | NT$3.1B for 3.2 million shares, cancelled in September 20245 | None of note; the diluted share count has been 25.93B since 2016513 |
| Overseas fabs | Arizona, Japan, Dresden | Up to US$6.6B of direct U.S. funding and US$5B of proposed loans for Arizona, and up to EUR5B of German state aid for Dresden, on conditions5 | Margin dilution of about 2 points in 2026, 3 to 4 points later; Arizona fab 2 is planned for volume production in 3Q2716 |
| Disposals and ventures | 2026 | Sold 8.1% of VIS in May; joint venture with Sony Semiconductor Solutions for image sensors in August1417 | A gain worth NT$2.24 a share in 2Q26 earnings19 |
Source 20-F 2025; SEC XBRL facts; 3Q26 release and presentation; 3Q26 call; 2Q26 release and presentation; 2Q26 call; 4Q25 call [5][13][14][16][17][19][26]. Figures as reported.
Capital spending was NT$7,042B from 2016 to 2025, 39% of revenue, while revenue grew 4.0 times (calculated).513 Dividends paid were NT$2,736B, 66% of cumulative free cash flow of NT$4,161B (calculated).513 The cash dividend a share was NT$6 in 2016, NT$18 in 2025 and NT$24 in 2026, and management describes a policy of a sustainable and steadily increasing dividend.1916 Buybacks are close to nil: one NT$3.1B program in 2024.5 Net cash reserves of NT$2,985B are 4.8% of market value (calculated).155014
Cash returned to shareholders
Fiscal years to 31 December, NT$ billions
- Buybacks NT$0B
- Dividends NT$466.8B
- Stock-based pay, as a level NT$1.2B
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Buybacks (reported) | n/a | n/a | n/a | n/a | n/a | n/a | n/a | NT$0B | NT$3.1B | NT$0B |
| Dividends (reported) | NT$155.6B | NT$181.5B | NT$207.4B | NT$259.3B | NT$259.3B | NT$265.8B | NT$285.2B | NT$291.7B | NT$363.1B | NT$466.8B |
| Total returned (calculated) | NT$155.6B | NT$181.5B | NT$207.4B | NT$259.3B | NT$259.3B | NT$265.8B | NT$285.2B | NT$291.7B | NT$366.1B | NT$466.8B |
| Stock-based compensation (reported) | n/a | n/a | n/a | NT$0.00B | NT$0.01B | NT$0.01B | NT$0.30B | NT$0.48B | NT$1.2B | NT$1.2B |
Cash dividends paid per ordinary share
NT$ per share paid in the calendar year; 2016 to 2025 calculated as dividends paid over 25.93B shares.
| Year | Per share, NT$ | Total paid, NT$B |
|---|---|---|
| 2016 | 6.00 | 155.6 |
| 2017 | 7.00 | 181.5 |
| 2018 | 8.00 | 207.4 |
| 2019 | 10.00 | 259.3 |
| 2020 | 10.00 | 259.3 |
| 2021 | 10.25 | 265.8 |
| 2022 | 11.00 | 285.2 |
| 2023 | 11.25 | 291.7 |
| 2024 | 14.00 | 363.1 |
| 2025 | 18.00 | 466.8 |
| 2026 (four payments, January to October) | 24.00 |
2026: NT$5.00, 6.00, 6.00 and 7.00 per share paid in the four quarters, as TSMC stated on its July 2026 call (NT$24, up 33%). The board approved NT$7.00 for each of the first and second quarters of 2026. The 1Q26 dividend went ex on 16 September and was paid on 8 October; the 2Q26 dividend goes ex on 10 December and is paid on 7 January 2027. Source 20-F 2025; 20-F 2024; 20-F 2023; 20-F 2022; 20-F 2021; 20-F 2020; 20-F 2019; 20-F 2018; SEC XBRL facts; 2Q26 call; Board resolutions, 12 May 2026; Board resolutions, 11 Aug 2026 [5][6][7][8][9][10][11][12][13][19][41][42]. Figures calculated from reported data.
The 2026 budget of US$60 to 64B is about 1.5 times 2025, and management expects 2026 to 2028 to be significantly higher than the US$101B spent in the last three years.191626 The CFO says that if TSMC does its job right revenue will outpace capital spending, and that tool price inflation is real.16
We have no intention to leave food on the table for others.
In 2026 TSMC will spend about 35% of revenue on plant and still grow revenue about 44%, and the price asks how long both can be true.
Financials
Free cash flow is what is left after the plant, and the plant is a third of revenue.
Gross margin went from 46.0% in 2019 to 59.9% in 2025 and 65.8% in the TTM. Operating margin went from 34.8% to 50.8% and 58.0%.514172124 Operating cash flow was 63.3% of TTM revenue and free cash flow 29.9% (calculated).14172124
Margins
Fiscal years to 31 December, share of revenue
- Gross 59.9%
- Operating 50.8%
- Free cash flow 26.3%
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | TTM Sep 2026 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross margin (calculated) | 50.1% | 50.6% | 48.3% | 46.0% | 53.1% | 51.6% | 59.6% | 54.4% | 56.1% | 59.9% | 65.8% |
| Operating margin (calculated) | 39.9% | 39.4% | 37.2% | 34.8% | 42.3% | 40.9% | 49.5% | 42.6% | 45.7% | 50.8% | 58.0% |
| Free cash flow margin (calculated) | 22.3% | 26.1% | 25.0% | 14.5% | 23.6% | 17.2% | 23.3% | 13.5% | 30.1% | 26.3% | 29.9% |
Depreciation is the line to watch. Depreciation and amortization were NT$220.2B in 3Q26, up 35% on the year and 14.7% of revenue, and capital spending is running at 2.2 times depreciation, so the charge keeps rising (calculated).15 The margin before depreciation, operating income plus depreciation and amortization over revenue, was 73.1% in the TTM. In every year from 2016 to 2025 it was between 61.6% and 68.9%, and 68.0% on average from 2020 to 2025 (calculated).51314172124 That one fact carries most of my valuation: today’s margin is above anything TSMC reported in the last decade.
Free cash flow, and what capital spending took
Fiscal years to 31 December, NT$ billions. The full column is operating cash flow.
- Free cash flow NT$1,003B in 2025
- Capital spending NT$1,272B
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | TTM Sep 2026 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating cash flow (reported) | NT$539.8B | NT$585.3B | NT$574.0B | NT$615.1B | NT$822.7B | NT$1,112B | NT$1,611B | NT$1,242B | NT$1,826B | NT$2,275B | NT$3,128B |
| Free cash flow (calculated) | NT$211.8B | NT$254.7B | NT$258.4B | NT$154.7B | NT$315.4B | NT$273.0B | NT$527.9B | NT$292.2B | NT$870.2B | NT$1,003B | NT$1,481B |
| Capital spending (reported) | NT$328.0B | NT$330.6B | NT$315.6B | NT$460.4B | NT$507.2B | NT$839.2B | NT$1,083B | NT$949.8B | NT$956.0B | NT$1,272B | NT$1,647B |
Earnings quality
TTM earnings per share of NT$98.26 include about NT$2.24 from a gain on the sale of VIS shares in 2Q26, TSMC’s own figure; without it they are about NT$96.02 (calculated).1914172124 Net interest income was NT$31.7B of the NT$34.6B of non-operating items in 3Q26.15 The 20-F books the surtax on undistributed earnings in the year the earnings arise, and the quarterly reports book it a year later. FY2025 net income to the parent was NT$1,697.6B on the 20-F basis and NT$1,717.9B on the quarterly basis; the annual columns below follow the 20-F and the TTM follows the quarterlies.527 The effective tax rate was 17.0% in 2025 on the 20-F basis and TSMC guides 17% to 18% for 2026.526
Government money
Free cash flow is operating cash flow less plant spending. Government grants, U.S. investment tax credits and interest received are reported in investing cash flow and are outside it. They were NT$284.9B in the TTM, 17% of TTM capital spending, and TSMC says the NT$198.7B in 3Q26 was mainly U.S. Treasury investment tax credits.15182225 The 20-F separately shows plant grants of NT$75.2B in 2024 and NT$76.3B in 2025, 6.0% of 2025 capital spending, before any tax credits.5 Interest received was NT$52.5B in the first half of 2026; twice that, NT$105B, would leave about NT$180B of credits, grants and other items, 11% of TTM capital spending. The split is not disclosed, so that is my estimate (estimate).20 I leave all of it out of the cases, and the bridge shows what it is worth.
From profit to cash
NT$ billions, TTM to September 2026, from the four quarterly reports (Taiwan IFRS).
| TTM | |
|---|---|
| Income from operations | 2,866.9 |
| Net income to the parent | 2,547.9 |
| Operating cash flow | 3,127.6 |
| Capital expenditure | −1,646.9 |
| Free cash flow, TSMC’s definition | 1,480.7 |
| Cash dividends paid | −570.5 |
| Other investing sources, not in free cash flow | 284.9 |
| Of which interest received, twice the first-half figure (estimate) | 105.0 |
| Credits, grants and other items, by difference (estimate) | 179.9 |
| That difference as a share of TTM capital spending (estimate) | 11% |
Other investing sources are the line TSMC reports in investing cash flow: interest received, government grants for plant, U.S. investment tax credits and other items. TSMC says the NT$198.7B in 3Q26 was mainly U.S. Treasury investment tax credits. The split is not disclosed; the last three rows are my estimate from the first-half interest figure. The 20-F separately shows plant grants of NT$75.2B in 2024 and NT$76.3B in 2025. Source 3Q26 release and presentation; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation; 3Q26 management report; 2Q26 management report; 1Q26 management report; 4Q25 management report [14][17][21][24][15][18][22][25]. Figures calculated from reported data.
The balance sheet
At 30 September 2026 TSMC held NT$4,017B of cash and marketable securities against NT$1,032B of interest-bearing debt: net cash reserves of NT$2,985B, with NT$225B of long-term investments on top.1514 Of the cash, NT$363B was declared and payable as dividends, NT$7 a share for each of 1Q26 and 2Q26. The 1Q26 dividend went ex on 16 September and was paid on 8 October, so the Q4 2026 price no longer carries it; I deduct NT$181.5B. The 2Q26 dividend goes ex on 10 December, so the price still carries it.41424314 TSMC still issues bonds, NT$86.9B in 2025.5
The four quarters in the trailing twelve months
NT$ billions unless stated. Taiwan IFRS, as in the quarterly reports.
| 4Q25 | 1Q26 | 2Q26 | 3Q26 | TTM | |
|---|---|---|---|---|---|
| Revenue | 1,046.1 | 1,134.1 | 1,270.4 | 1,494.2 | 4,944.8 |
| Gross profit | 652.0 | 751.3 | 860.3 | 992.4 | 3,256.0 |
| Income from operations | 564.9 | 659.0 | 766.6 | 876.4 | 2,866.9 |
| Net income to the parent | 505.7 | 572.5 | 706.6 | 763.1 | 2,547.9 |
| Diluted EPS, NT$ | 19.50 | 22.08 | 27.25 | 29.43 | 98.26 |
| Operating cash flow | 725.5 | 699.0 | 783.4 | 919.8 | 3,127.6 |
| Capital expenditure | 356.9 | 350.8 | 496.0 | 443.2 | 1,646.9 |
| Free cash flow | 368.6 | 348.2 | 287.4 | 476.6 | 1,480.7 |
| Depreciation and amortization | 162.1 | 165.5 | 198.5 | 220.2 | 746.3 |
| Research and development | 64.9 | 67.8 | 73.1 | 89.0 | 294.7 |
| Gross margin | 62.3% | 66.2% | 67.7% | 66.4% | 65.8% |
| Operating margin | 54.0% | 58.1% | 60.3% | 58.7% | 58.0% |
| Revenue, US$B | 33.73 | 35.90 | 40.20 | 46.72 | 156.55 |
TTM columns are sums of the four quarters; margins in the TTM column are TTM profit over TTM revenue. Free cash flow is TSMC's definition: operating cash flow less capital expenditure. Source 3Q26 release and presentation; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation; 3Q26 management report; 2Q26 management report; 1Q26 management report; 4Q25 management report [14][17][21][24][15][18][22][25]. Figures calculated from reported data.
Capital spending by quarter
US$ billions, consolidated, as TSMC reports it.
| Quarter | Capex, US$B |
|---|---|
| 1Q25 | 10.06 |
| 2Q25 | 9.63 |
| 3Q25 | 9.70 |
| 4Q25 | 11.51 |
| 2025 | 40.90 |
| 1Q26 | 11.10 |
| 2Q26 | 15.70 |
| 3Q26 | 13.84 |
| 2026 to date | 40.64 |
| 2026 budget, low to high | 60 to 64 |
| Implied 4Q26, low to high | 19.4 to 23.4 |
The implied fourth quarter is calculated: budget less spending to date. Source 4Q25 management report; 2Q26 management report; 3Q26 management report [25][18][15]. Figures as reported.
The numbers, year by year
Calendar years. Money in NT$ billions. 2016 to 2025 follow the Form 20-F; TTM Sep 2026 is 4Q25 + 1Q26 + 2Q26 + 3Q26 from TSMC's quarterly reports (Taiwan IFRS: net income and EPS differ from the 20-F basis by the timing of the surtax on undistributed earnings). Diluted shares for 2016, 2018 and 2019 are the basic weighted average (25.930B), because the filing data has no separate diluted figure; the gap is under 0.01%. Depreciation excludes amortization (TTM depreciation and amortization, NT$746.3B, is in the quarters table); share-based pay is the equity-settled expense; most staff pay is cash profit sharing and sits in operating costs. Capex is cash paid for property, plant and equipment, before U.S. investment tax credits, which TSMC books in investing cash flow.
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | TTM Sep 2026 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue (reported) | NT$947.9B | NT$977.4B | NT$1,031B | NT$1,070B | NT$1,339B | NT$1,587B | NT$2,264B | NT$2,162B | NT$2,894B | NT$3,809B | NT$4,945B |
| Revenue growth (calculated) | – | 3.1% | 5.5% | 3.7% | 25.2% | 18.5% | 42.6% | −4.5% | 33.9% | 31.6% | – |
| Gross margin (calculated) | 50.1% | 50.6% | 48.3% | 46.0% | 53.1% | 51.6% | 59.6% | 54.4% | 56.1% | 59.9% | 65.8% |
| Income from operations (reported) | NT$378.0B | NT$385.6B | NT$383.6B | NT$372.7B | NT$566.8B | NT$650.0B | NT$1,121B | NT$921.5B | NT$1,322B | NT$1,936B | NT$2,867B |
| Operating margin (calculated) | 39.9% | 39.4% | 37.2% | 34.8% | 42.3% | 40.9% | 49.5% | 42.6% | 45.7% | 50.8% | 58.0% |
| Net income to shareholders of the parent (reported) | NT$331.7B | NT$345.0B | NT$363.1B | NT$353.9B | NT$510.7B | NT$592.4B | NT$992.9B | NT$851.7B | NT$1,158B | NT$1,698B | NT$2,548B |
| Diluted EPS (NT$ per ordinary share) (reported) | NT$12.79 | NT$13.30 | NT$14.00 | NT$13.65 | NT$19.70 | NT$22.84 | NT$38.29 | NT$32.85 | NT$44.67 | NT$65.47 | NT$98.26 |
| Research and development (reported) | NT$71.2B | NT$80.7B | NT$85.9B | NT$91.4B | NT$109.5B | NT$124.7B | NT$163.3B | NT$182.4B | NT$204.2B | NT$246.4B | NT$294.7B |
| Depreciation (reported) | NT$220.1B | NT$255.8B | NT$288.1B | NT$281.4B | NT$324.5B | NT$414.2B | NT$428.5B | NT$522.9B | NT$653.6B | NT$679.7B | – |
| Operating cash flow (reported) | NT$539.8B | NT$585.3B | NT$574.0B | NT$615.1B | NT$822.7B | NT$1,112B | NT$1,611B | NT$1,242B | NT$1,826B | NT$2,275B | NT$3,128B |
| Capital expenditure (reported) | NT$328.0B | NT$330.6B | NT$315.6B | NT$460.4B | NT$507.2B | NT$839.2B | NT$1,083B | NT$949.8B | NT$956.0B | NT$1,272B | NT$1,647B |
| Free cash flow (calculated) | NT$211.8B | NT$254.7B | NT$258.4B | NT$154.7B | NT$315.4B | NT$273.0B | NT$527.9B | NT$292.2B | NT$870.2B | NT$1,003B | NT$1,481B |
| Free cash flow margin (calculated) | 22.3% | 26.1% | 25.0% | 14.5% | 23.6% | 17.2% | 23.3% | 13.5% | 30.1% | 26.3% | 29.9% |
| Cash dividends paid (reported) | NT$155.6B | NT$181.5B | NT$207.4B | NT$259.3B | NT$259.3B | NT$265.8B | NT$285.2B | NT$291.7B | NT$363.1B | NT$466.8B | NT$570.5B |
| Diluted weighted average shares (reported) | 25.9B | 25.9B | 25.9B | 25.9B | 25.9B | 25.9B | 25.9B | 25.9B | 25.9B | 25.9B | 25.9B |
(reported)Reported in a filing (calculated)Calculated from reported figures (estimate)My estimate
Source 20-F 2025; 20-F 2024; 20-F 2023; 20-F 2022; 20-F 2021; 20-F 2020; 20-F 2019; 20-F 2018; SEC XBRL facts; 3Q26 release and presentation; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation; 3Q26 management report; 2Q26 management report; 1Q26 management report; 4Q25 management report [5][6][7][8][9][10][11][12][13][14][17][21][24][15][18][22][25]. Lines marked C are calculated from the reported lines above them.
Valuation
First, how this goes badly wrong
Working back from losses, three ways stand out. An AI pause with the plant built: high performance computing is 68% of revenue, so a 25% fall there takes my bear value to NT$887.15540 Plant that costs more per dollar of revenue: at US$1.05, my base value is NT$1,842 (estimate).15 And Taiwan, which my cases leave out: a 44% chance of losing the business takes the base to NT$1,180.33
What an owner could really take out
Over the last twelve months TSMC earned NT$2,547.9B. After NT$1,646.9B of plant, free cash flow was NT$1,480.7B, 58% of that, or about NT$57 a share against earnings of NT$98.26 (calculated).14172124 Stock pay, NT$1.2B in 2025, hardly moves it.5 Some plant buys growth. Spending only the NT$746.3B of depreciation would leave about NT$92 a share, 93% of earnings (estimate).14172124 Spending is 2.2 times depreciation, so I read it nearer NT$57, and my cases take cash after all the plant.
What I can’t judge
I can’t say how much plant is needed to stay in place, how long AI demand lasts, or what the Taiwan risk is worth. So I show a range, NT$887 to NT$3,056, not one value.
What the price implies
On the Taiwan price TSMC trades at 24.1 times trailing earnings, 21.4 times my estimate of 2026 earnings and 17.4 times my estimate of the next twelve months; the ADR trades at 28.6, 25.4 and 20.6 times (estimate).5014172124 The median at the year-ends of 2016 to 2025 was 20.9 times, in a range of 11.7 to 26.9, so today’s 24.1 times is 15% above that median (calculated).44513
Price to earnings at each year-end
Taiwan close on the last session of each December over that year's diluted earnings per share. NT$ per ordinary share.
| Year-end | Close | Earnings per share | Price to earnings |
|---|---|---|---|
| 2016 | 181.5 | 12.79 | 14.2 |
| 2017 | 229.5 | 13.30 | 17.3 |
| 2018 | 225.5 | 14.00 | 16.1 |
| 2019 | 331.0 | 13.65 | 24.2 |
| 2020 | 530.0 | 19.70 | 26.9 |
| 2021 | 615.0 | 22.84 | 26.9 |
| 2022 | 448.5 | 38.29 | 11.7 |
| 2023 | 593.0 | 32.85 | 18.1 |
| 2024 | 1,075.0 | 44.67 | 24.1 |
| 2025 | 1,550.0 | 65.47 | 23.7 |
| Median, 2016 to 2025 | 20.9 | ||
| Q4 2026, on TTM earnings | 2,370.0 | 98.26 | 24.1 |
Earnings through 2025 are the 20-F series (IFRS as issued by the IASB); the TTM figure is on the Taiwan basis, which books the surtax on undistributed earnings a year later, so the last row is not strictly like the others. Source TWSE, year-end closes; 20-F 2025; SEC XBRL facts; TWSE, 2330; 3Q26 release and presentation; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation [44][5][13][50][14][17][21][24]. Figures calculated from reported data.
Ways to read the price
What NT$2,370 (Taiwan) and NT$2,813 (the ADR price per ordinary share) need to be true. Multiples and returns are my estimates on the company's outlook and my cash flows.
| Reading | What the price needs |
|---|---|
| Price to trailing earnings | 24.1 times on the Taiwan price and 28.6 on the ADR price, on NT$98.26 of earnings a share; 24.7 and 29.3 times without the NT$2.24 gain on VIS shares (calculated)14172124 |
| Price to 2026 earnings | 21.4 times and 25.4 times: about NT$111 a share, which is NT$78.76 reported for the first three quarters plus about NT$32 for the fourth at the guidance midpoint and NT$31.8 to the dollar (estimate)14172124 |
| Price to my next-twelve-month earnings | 17.4 times and 20.6 times: about NT$136 a share at NT$32.57 to the dollar, from my year-one operating income of US$128.6B plus US$3.9B of net interest, taxed at 18%; at the guide’s NT$31.8 it is NT$133 and 17.8 times (estimate)14 |
| Enterprise value to operating income | 20.4 times the TTM and 14.0 times my year one on the Taiwan price; 24.4 and 16.7 on the ADR price (calculated)1415 |
| Free cash flow yield | 2.4% on the TTM and 3.0% on my year one on the Taiwan price; 2.0% and 2.5% on the ADR price (estimate)14172124 |
| Return a year from my cash flows | Taiwan price: bear 5.3%, base 9.4%, bull 12.3%. ADR price: 4.9%, 8.4%, 11.0%. The 10-year Treasury yields 5.00%; the capital asset pricing model gives 9.9% to 11.0% (estimate)303132 |
| Today’s margin, held | The TTM margin before depreciation, 73.1%, held for fifteen years on my base revenue and plant, is worth NT$2,218 a share, 6% under the Taiwan price. The price needs 76.4% held for fifteen years, against a best year of 68.9% in the last decade (estimate)14172124 |
| Faster growth, my margins | Revenue growth of 12.0% a year in years 2 to 10 instead of my 8.7%: year-ten revenue of US$620B, against my US$474B (estimate) |
| The ADR price on my margins | Revenue growth of 15.2% a year in years 2 to 10: year-ten revenue of US$800B, more than my bull case’s US$641B (estimate) |
Source Yahoo Finance, TSM; TWSE, 2330; Yahoo Finance, TWD=X; 3Q26 release and presentation; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation; U.S. Treasury yields; Damodaran ERP; Yahoo Finance, monthly [49][50][3][14][17][21][24][30][31][32]. Judgements are my estimates.
The Taiwan price is today’s margin, held, and more. The TTM margin before depreciation of 73.1%, held for fifteen years on my revenue and plant, gives NT$2,218 a share; the price needs 76.4%, against a best year of 68.9% in the last decade (estimate). Revenue growth of 12.0% a year in years 2 to 10, against my 8.7%, also gets there (estimate). Solved for one growth rate of free cash flow, the price needs 13.6% a year for fifteen years from the TTM’s NT$1,480.7B, to about NT$10.0 trillion in year fifteen (calculated), between my base case (NT$6.3 trillion) and my bull case (NT$10.4 trillion) (estimate).14172124
What the Taiwan price implies
Solve the model for the price of NT$2,370 instead of for value.
| Starting free cash flow (calculated) | NT$1,480.7B (TTM to Sep 2026, before government money) |
|---|---|
| Discount rate (estimate) | 10.5% |
| Growth after year 15 (estimate) | 3.0% |
| Net cash, investments and other claims (calculated) | NT$2,953.3B |
| Ordinary shares (reported) | 25.932B (30 Sep 2026) |
| Price (reported) | NT$2,370 (Taiwan close, Q4 2026) |
| What the price implies, years 1 to 15 (calculated) | 13.6% |
Source TWSE, 2330; 3Q26 release and presentation; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation; 20-F 2025; 2Q26 financial statements [50][14][17][21][24][5][20]. Inputs from the filings and my model; the implied rate is calculated.
What the Taiwan price assumes
Growth a year in free cash flow that the price needs, years 1 to 15, next to the record and my cases.
Show the numbers
| Rate | |
|---|---|
| What the price implies, years 1 to 15 (calculated) | 13.6% |
| Free cash flow growth, 2016 to 2025 (calculated) | 18.9% |
| My bull case, years 1 to 15 (estimate) | 13.9% |
| My base case, years 1 to 15 (estimate) | 10.2% |
| My bear case, years 1 to 15 (estimate) | 3.3% |
On my revenue and plant, the Taiwan price needs a margin before depreciation of 76% held for fifteen years, or revenue growth about 3 points a year faster than my base case; the ADR price needs more revenue than my bull case.
The ADR premium
One ADR is five ordinary shares. At the NT$32.57 to the dollar I hold, the ADR’s close of US$431.81 on 29 October equals NT$2,812.81 an ordinary share, 18.7% above the Taiwan close of NT$2,370 on 30 October (calculated).495034 The New York session of 30 October had not closed when I pulled the data, so the ADR line is the older of the two; against the Taiwan close of the same date, 29 October (NT$2,415.00), the premium was 16.5% (calculated).4950333 Since my earlier pricing the Taiwan close is 0.6% lower than the NT$2,385.00 of 22 October and the ADR 3.2% higher than the US$418.51 of 23 October (calculated).12 Taiwan did not trade on 23 October, a day the exchange’s schedule does not list as a holiday.34 Over the past year it had a median of 17.2% and a range of 7.0% to 29.7% (calculated). The Taiwan stock is 72% above its November 2025 low close of NT$1,375 and 8% below its Q4 2026 high of NT$2,585 (calculated).3350
The 20-F gives no reason for the premium. It does cap new depositary receipts at the number the regulator approved plus those already cancelled, and it requires a holder who withdraws shares to register with the exchange and appoint a local agent, a custodian and a tax guarantor.5 My inference is that these rules limit arbitrage; I cannot confirm that they explain the premium. The Taiwan price is 18% above my base value and the ADR price 40% above it; I do not model the premium closing.
The discount rate
I use 10.5%, the midpoint of the capital asset pricing model’s range: 9.9% with a 10-year beta of 1.17 and 11.0% with a 5-year beta of 1.43, on a 5.00% Treasury yield and a 4.20% equity risk premium (calculated).303132 Substantially all of TSMC’s sales are in US dollars, so I use a US-dollar rate, keep the exchange rate at NT$32.57 and put no country premium in it.53 At NT$2,370 my base cash flows return 9.4% a year, below the 9.9% to 11.0% that the model gives, so the price includes more margin or growth than my base case; at the ADR price they return 8.4%, 1.5 points under the lower rate. At 11.0% my base value is NT$1,875, 21% under the Taiwan price (estimate).
My base case at other rates
Value per ordinary share; discount rate down the side, growth after year fifteen across the top.
| Discount rate | 2.5% | 3.0% | 3.5% |
|---|---|---|---|
| 9.0% | NT$2,446 | NT$2,533 | NT$2,635 |
| 9.9%, CAPM with the 10-year beta | NT$2,128 | NT$2,185 | NT$2,252 |
| 10.0% | NT$2,101 | NT$2,156 | NT$2,220 |
| 10.5%, my rate | NT$1,961 | NT$2,006 | NT$2,058 |
| 11.0%, CAPM with the 5-year beta | NT$1,839 | NT$1,875 | NT$1,917 |
The capital asset pricing model with the 10-year beta of 1.17 gives 9.9% and with the 5-year beta of 1.43 gives 11.0%, on a 5.00% Treasury yield and a 4.20% equity risk premium. I use the midpoint, 10.5%. Source U.S. Treasury yields; Damodaran ERP; Yahoo Finance, monthly [30][31][32]. Judgements are my estimates.
Three cases
I build each case from revenue down to free cash flow: a margin before depreciation, depreciation at 19% of average net plant rising to 23% (it was 18% to 27% in 2016 to 2025), an 18% tax rate (the top of TSMC’s 2026 guide), net new plant equal to the next year’s revenue change over the revenue a dollar of plant supports, and working capital at 2% of each year’s revenue change (calculated).51326 Applied to the TTM at a 17% tax, the method gives NT$1,479B of free cash flow, against TSMC’s reported NT$1,480.7B (calculated).14172124
Three cases
Each case is built from revenue down to free cash flow; years run October to September, starting October 2026. US dollars unless marked NT$.
| Bear | Base | Bull | |
|---|---|---|---|
| Revenue, year 1 (to Sep 2027) (estimate) | US$205B, +31% on the TTM | US$223B, +42% on the TTM | US$232B, +48% on the TTM |
| Revenue growth, year 2 (estimate) | −19.8%: HPC falls 25% on 68% of revenue, the rest falls 8.7% | +19% | +27% |
| Revenue growth, years 3 to 5 (estimate) | +3%, +6%, +6% | 14%, 11%, 9% | 20%, 15%, 12% |
| Revenue growth, years 6 to 10 (estimate) | 5% falling to 3.5% | 7% falling to 4% | 9% falling to 5.5% |
| Revenue, year 5 (estimate) | US$190B | US$366B | US$455B |
| Revenue, year 10 (estimate) | US$233B, 4.0% a year from the TTM | US$474B, 11.7% a year from the TTM | US$641B, 15.1% a year from the TTM |
| Margin before depreciation, year 1 (estimate) | 70.0% | 71.5% | 72.5% |
| Margin before depreciation, year 2 (estimate) | 64.0% | 70.8% | 72.0% |
| Margin before depreciation, year 10 (estimate) | 62.0% | 68.0% | 71.5% |
| Capital spending, year 1 (estimate) | US$70B | US$78B | US$95B |
| Capital spending, year 5 (estimate) | US$56B | US$97B | US$110B |
| Capital spending, year 10 (estimate) | US$67B | US$120B | US$146B |
| Net plant per US$1 of revenue, year 10 (estimate) | 1.15 | 0.94 | 0.83 |
| Operating margin, year 3 (estimate) | 38.5% | 53.7% | 55.6% |
| Operating margin, year 10 (estimate) | 37.1% | 46.9% | 53.0% |
| Gross margin, year 10 (operating spending of 9% of revenue) (estimate) | 46.1% | – | – |
| Return on net plant, year 10 (estimate) | 27% | 42% | 54% |
| Free cash flow, year 10 (estimate) | US$62B, 26.7% of revenue | US$162B, 34.2% of revenue | US$251B, 39.1% of revenue |
| Tax rate (estimate) | 18% | 18% | 18% |
| Discount rate (estimate) | 10.5% | 10.5% | 10.5% |
| Growth after year 15 (estimate) | 2.5% | 3.0% | 3.5% |
| Return a year at NT$2,370 (estimate) | 5.3% | 9.4% | 12.3% |
| Gross margin, year 10 (operating spending of 8.5% of revenue) (estimate) | – | 55.4% | 61.5% |
| Weight (estimate) | 25% | 50% | 25% |
| Value per share (estimate) | NT$887 | NT$2,006 | NT$3,056 |
| Versus the price, Q4 2026 (calculated) | −63% | −15% | +29% |
Source 20-F 2025; 3Q26 release and presentation; 3Q26 management report; 3Q26 call; 2Q26 financial statements; 4Q25 call; Yahoo Finance, TSM; TWSE, 2330; Yahoo Finance, TWD=X; U.S. Treasury yields; Damodaran ERP; Yahoo Finance, monthly; Board resolutions, 12 May 2026; Board resolutions, 11 Aug 2026; TWSE ex-dividend table [5][14][15][16][20][26][49][50][3][30][31][32][41][42][43]. Assumptions and values are my estimates.
The three cases in numbers
Years run October to September, so year one ends September 2027 and year three September 2029. US$ billions or share of revenue.
| TTM | Year 1 | Year 2 | Year 3 | Year 5 | Year 10 | |
|---|---|---|---|---|---|---|
| Bear | ||||||
| Revenue, US$B | 156.6 | 205 | 164 | 169 | 190 | 233 |
| Margin before depreciation | 73.1% | 70.0% | 64.0% | 62.0% | 62.0% | 62.0% |
| Depreciation and amortization | 15.1% | 14.7% | 22.3% | 23.5% | 23.0% | 24.9% |
| Operating margin | 58.0% | 55.3% | 41.7% | 38.5% | 39.0% | 37.1% |
| Capital spending, US$B | 52.1 | 70 | 58 | 45 | 56 | 67 |
| Net plant per US$1 of revenue | 0.92 | 0.87 | 1.22 | 1.21 | 1.16 | 1.15 |
| Return on net plant after tax | 59% | 58% | 30% | 26% | 28% | 27% |
| Free cash flow, US$B | 46.9 | 52 | 36 | 48 | 49 | 62 |
| Base | ||||||
| Revenue, US$B | 156.6 | 223 | 265 | 303 | 366 | 474 |
| Margin before depreciation | 73.1% | 71.5% | 70.8% | 70.1% | 68.7% | 68.0% |
| Depreciation and amortization | 15.1% | 13.8% | 15.2% | 16.4% | 18.1% | 21.1% |
| Operating margin | 58.0% | 57.7% | 55.6% | 53.7% | 50.6% | 46.9% |
| Capital spending, US$B | 52.1 | 78 | 84 | 89 | 97 | 120 |
| Net plant per US$1 of revenue | 0.92 | 0.83 | 0.87 | 0.89 | 0.91 | 0.94 |
| Return on net plant after tax | 59% | 65% | 58% | 53% | 47% | 42% |
| Free cash flow, US$B | 46.9 | 57 | 76 | 93 | 121 | 162 |
| Bull | ||||||
| Revenue, US$B | 156.6 | 232 | 295 | 354 | 455 | 641 |
| Margin before depreciation | 73.1% | 72.5% | 72.0% | 71.5% | 71.5% | 71.5% |
| Depreciation and amortization | 15.1% | 13.9% | 15.2% | 15.9% | 16.7% | 18.5% |
| Operating margin | 58.0% | 58.6% | 56.8% | 55.6% | 54.8% | 53.0% |
| Capital spending, US$B | 52.1 | 95 | 101 | 104 | 110 | 146 |
| Net plant per US$1 of revenue | 0.92 | 0.87 | 0.87 | 0.87 | 0.84 | 0.83 |
| Return on net plant after tax | 59% | 65% | 60% | 57% | 56% | 54% |
| Free cash flow, US$B | 46.9 | 47 | 80 | 112 | 170 | 251 |
The TTM column is reported quarter by quarter in US dollars, an average of NT$31.59 to the dollar; its return on net plant is operating profit after the model's 18% tax over the average of net plant at 30 September 2025 and 2026, so it compares with the case columns. Free cash flow is operating cash flow less capital spending in the TTM and my model's figure after that. Year-one capital spending in the base case is a model output (the revenue change divided by what a dollar of plant supports), consistent with the fourth quarter's implied US$19.4B to 23.4B. Source 3Q26 release and presentation; 3Q26 management report; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation; 20-F 2025 [14][15][17][21][24][5]. Judgements are my estimates.
Which of my assumptions flatter the base value and which cut it
Direction is against a neutral reading of the record; each number has its source.
| Assumption | Effect on value | The number and its source |
|---|---|---|
| Calendar-2029 revenue | Raises | US$311B, 13% above the company’s January path of about US$275B (growth approaching 25% a year from 2024) (calculated)2624 |
| Return on net plant, year ten | Raises | 42%, against a ten-year average of 33%; 2025’s 46.4% was the best year in the record (calculated)513 |
| Return on new plant after year fifteen | Raises | 35% in perpetuity, above the ten-year average of 33% (estimate) |
| Capital spending, year ten | Raises | 25% of revenue, below every year from 2016 to 2025 (the low was 30.6% in 2018) (calculated)5 |
| Revenue path | Raises | No down year in years 2 to 10, where the last decade has one: 2023, down 8.7% in US dollars and 4.5% in NT dollars405 |
| Year-ten gross margin | Cuts | 55.4%, 0.6 point under management’s through-cycle floor of 56% (calculated)26 |
| Government money | Cuts | None counted. At 6% of capital spending for ten years it adds NT$43 a share and at 11% NT$79 (estimate)515182225 |
| Exchange rate | Cuts | Held at NT$32.57 while the 4Q26 guide uses NT$31.8; the 0.3 point of operating margin for each 1% would be worth about 0.7 point, or NT$33 a share, and I leave it out (estimate)1453 |
| Tax rate | Cuts | 18%, the top of the 17% to 18% TSMC guides for 2026; at 17% the value is NT$2,034 (estimate)26 |
Source 20-F 2025; SEC XBRL facts; 3Q26 release and presentation; 3Q26 management report; 2Q26 management report; 1Q26 management report; 4Q25 release and presentation; 4Q25 management report; 4Q25 call; 4Q23 presentation (6-K); Yahoo Finance, TWD=X [5][13][14][15][18][22][24][25][26][40][3]. Judgements are my estimates.
Base case. Year one, to September 2027, is US$223B: 4Q26 at the guidance midpoint of US$53.3B plus three quarters that average US$56.6B, 42% on the TTM (estimate).14 Revenue then grows 19%, 14%, 11% and 9% in years 2 to 5, and 7% falling to 4% after that. Calendar-2029 revenue is about US$311B, 13% above the company’s January path of about US$275B.2624 The margin before depreciation falls from the 71.5% the 4Q26 guide implies to 68.0% in year six, the 2020 to 2025 average (calculated).145 Capital spending ends at 25% of revenue, below every year from 2016 to 2025 (the low was 30.6% in 2018), because each dollar of plant carries US$1.06 of revenue (calculated).5 Return on net plant, after an 18% tax and on average plant, goes from 58.6% in the TTM to 65% in year one and 42% in year ten, against 33.1% on average over ten years (estimate). Terminal reinvestment is 8.6% of after-tax operating profit for 3% growth, a return on new plant of 35%, above the ten-year average. That is the generous end, and I cannot defend it for plant that is 25% of revenue beyond the record, so the downside table prices returns on new plant of 20%, 15% and 10.5%.
Where the fall in gross margin comes from, base case
From the TTM to year ten, in points of revenue.
| Gross margin | |
|---|---|
| Gross margin in the TTM | 65.8% |
| Depreciation and amortization rise from 15.1% to 21.1% of revenue | −6.0 points |
| Margin before depreciation falls from 73.1% to 68.0%, my call: the 2020 to 2025 average | −5.1 points |
| Operating spending rises from 7.9% to 8.5% of revenue, which lifts gross margin for a given operating margin | +0.6 points |
| Gross margin in year ten | 55.4% |
| For reference: dilution management names, 3 to 4 points from the 2-nanometer ramp and 3 to 4 later from overseas fabs | −6 to −8 points |
| For reference: the through-cycle floor of 56% | −9.8 points |
| My year-ten gross margin against that floor | −0.6 points |
The first four rows are my model. The two reference rows are management's: the dilution is in the 2Q26 and 3Q26 calls and the floor is its through-cycle target of a gross margin of 56% and higher. Depreciation is part of the dilution management names, so I read the second row as roughly that dilution; the third row is my own assumption and management has not named it. Source 3Q26 release and presentation; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation; 20-F 2025; 3Q26 call; 2Q26 call; 4Q25 call [14][17][21][24][5][16][19][26]. Judgements are my estimates.
I did not shrink the fade. Management names 6 to 8 points of dilution; my gross margin falls 10.5 points, and the 2.5 to 4.5 points beyond the named dilution are my assumption that the margin before depreciation returns to its 2020 to 2025 average. Management’s own floor of 56% is a fall of 9.8 points, so I am 0.6 point under it. The first table under “What closes the gap” prices a year-ten gross margin of 56%, 60% and 62%.261619
Bear case. An AI pause with the plant already built. High performance computing, 68% of 3Q26 revenue against 43% in 2023, falls 25% in year two, which takes 17.0 points off company revenue; the rest falls 8.7%, as the whole company did in 2023 in US dollars, which takes off 2.8 more. Revenue falls 19.8% to US$164B, 23% below the 4Q26 annualized run rate of US$213B.15540 The margin before depreciation falls to 64% in year two and to its 2019 level of 62% from year three, because a significant portion of costs is fixed; operating margin in year two is 41.7%, against 42.6% in 2023 on a revenue fall of 8.7%. Gross margin is about 46% in year ten and the return on net plant settles near 27%, the bottom of its ten-year range (estimate).526
Bull case. Demand runs ahead of supply for years. Revenue is US$641B in year ten, 15% a year from the TTM; the margin before depreciation stays near today’s, at 71.5%; each dollar of new plant supports US$1.00 to US$1.20 of new revenue, where I use US$0.85 to US$0.92 in the base case (estimate).14
Terminal growth differs by case (2.5%, 3.0%, 3.5%); at 3.0% in all three the bear is NT$902 and the bull NT$2,959, so about NT$112 of the spread is that choice. The 25%, 50% and 25% weights are a convention, not probabilities; they give NT$1,989, which I do not use for the margin of safety (estimate).4950
What it is worth, against the price
Value per share in New Taiwan dollars. My bear, base and bull cases against the closing price in Q4 2026.
- Bear to bull range
- Base case NT$2,006
- Price, Q4 2026 close NT$2,370.00
- Margin-of-safety zone below NT$1,180
Show the numbers
| Per share | Against the price | |
|---|---|---|
| Bear case (estimate) | NT$887 | 63% below price |
| Base case (estimate) | NT$2,006 | 15% below price |
| Bull case (estimate) | NT$3,056 | 29% above price |
| Margin-of-safety price (calculated) | NT$1,180 | 50% below price |
| Price, Q4 2026 (reported) | NT$2,370.00 |
I add NT$2,953B of net cash reserves and investments, NT$114 a share, at carrying value, after the dividend deduction.14152041 The terminal value is 40% of the value of the cash flows and 37% of the base value including cash (estimate).
What I add to the cash flows
NT$ billions at 30 September 2026, except where marked. Interest on the cash is not in free cash flow, so the cash is added once.
| NT$B | |
|---|---|
| Cash and marketable securities | 4,017.0 |
| Less interest-bearing debt | −1,031.6 |
| Net cash reserves, TSMC’s definition | 2,985.4 |
| Plus long-term investments (financial assets and equity-method holdings) | 224.6 |
| Less non-controlling interests (30 June) | −42.0 |
| Less non-current lease liabilities (30 June) | −33.3 |
| Less the 1Q26 dividend of NT$7 a share: ex-dividend 16 September, paid 8 October | −181.5 |
| Added to the value of the cash flows | 2,953.3 |
| Per ordinary share | NT$113.9 |
| Share of the NT$2,370 price | 4.8% |
Interest received (NT$52.5B in the first half of 2026) sits in investing cash flow, not in operating cash flow, so it is outside free cash flow. Dividends payable at 30 September were NT$363.05B, NT$7 a share for each of 1Q26 and 2Q26. The 1Q26 dividend went ex on 16 September, before the Q4 2026 price, so the price no longer carries it and I deduct it. The 2Q26 dividend goes ex on 10 December, so the price still carries it and its cash stays in. Source 3Q26 release and presentation; 3Q26 management report; 2Q26 financial statements; Board resolutions, 12 May 2026; TWSE ex-dividend table [14][15][20][41][43]. Figures calculated from reported data.
Does the revenue add up
The base case needs revenue to grow 26.2% a year from US$122.4B in 2025 to US$311B in calendar 2029. At the company’s forecast rate AI accelerators reach US$127B, 41% of base revenue, and everything else must grow 16.3% a year; on the company’s own path of US$275B everything else grows 10.2% a year (estimate).26 Year-ten revenue of US$474B at 2025’s revenue per wafer needs 58 million wafers, 3.4 times today’s capacity of more than 17 million; at revenue per wafer rising 5% a year it needs 36 million, 2.1 times (estimate).52416
Does the base-case revenue add up?
Calendar 2029 is three quarters of year three and one quarter of year four. 2025 AI accelerator revenue is 18% of US$122.4B, my reading of the company's "high teens".
| 2025 | Calendar 2029 | Growth a year, 2025 to 2029 | |
|---|---|---|---|
| AI accelerators, at 55% a year from 2025 (estimate) | US$22.0B | US$127B | 55% |
| Everything else | US$100.4B | US$184B | 16.3% |
| Total, my base case | US$122.4B | US$311B | 26.2% |
| Company path: approaching 25% a year from 2024 | US$275B | 22.4% | |
| Everything else, if AI is US$127B and the total is US$275B | US$100.4B | US$148B | 10.2% |
The company's AI accelerator forecast is a mid-to-high-50s percent rate for 2024 to 2029; applying 55% to 2025 is my arithmetic, not the company's. The company's January path is a revenue growth rate approaching 25% from 2024, which ends 2029 near US$275B. Source 4Q25 call; 20-F 2025; 4Q25 release and presentation [26][5][24]. Judgements are my estimates.
What closes the gap
Of the single changes in the bridge, only the bull revenue path takes the base value to the Taiwan price. The TTM margin held gives NT$2,218, 2 points more growth in years 2 to 10 gives NT$2,201 and plant as productive as in my bull case gives NT$2,211; any two of the three reach the price (estimate).50 Government money is the largest item I leave out. At 11% of capital spending for ten years it adds NT$79 a share; kept through the terminal value it adds NT$164 and leaves the base value 8% under the price. The split is not disclosed, so both are upper bounds (estimate).15182225
What would close the gap, one change at a time
Base-case value per ordinary share when one assumption changes; everything else as in the base case. Highest first.
| Change | Value | Against the Taiwan price |
|---|---|---|
| My base case | NT$2,006 | −15% |
| Bull revenue path on base margins and plant | NT$2,438 | +3% |
| Year-ten gross margin of 62% (margin before depreciation of 74.6%, from 71.5% in year one), against my 55.4% | NT$2,270 | −4% |
| The 73.1% TTM margin before depreciation held for fifteen years | NT$2,218 | −6% |
| Plant as productive as in my bull case (US$1.00 to US$1.20 of new revenue per US$1 of new plant, against my US$0.85 to US$0.92) | NT$2,211 | −7% |
| Revenue growth 2 points higher in each of years 2 to 10 | NT$2,201 | −7% |
| Year-ten gross margin of 60% (margin before depreciation of 72.6%, from 71.5% in year one), against my 55.4% | NT$2,191 | −8% |
| Discount rate of 9.9%, the capital asset pricing model with the 10-year beta, instead of 10.5% | NT$2,185 | −8% |
| Credits and grants at 11% of capital spending, kept through year 15 and the terminal value (an upper bound) | NT$2,170 | −8% |
| Credits and grants at 11% of capital spending in years 1 to 10 | NT$2,085 | −12% |
| Growth after year 15 of 3.5% instead of 3.0% | NT$2,058 | −13% |
| Grants at their 2025 share of capital spending, 6.0%, in years 1 to 10 | NT$2,049 | −14% |
| Margin before depreciation 0.7 point higher in every year, for spot NT$32.57 against the guide’s NT$31.8 | NT$2,039 | −14% |
| Tax rate of 17% instead of 18% | NT$2,034 | −14% |
| Year-ten gross margin of 56% (margin before depreciation of 68.6%, from 71.5% in year one), against my 55.4% | NT$2,031 | −14% |
| Cash flows dated from Q4 2026 instead of 30 September | NT$2,019 | −15% |
The gross margin rows set the year-ten margin and move the margin before depreciation in a straight line to it; year-ten gross margin is that margin less year-ten depreciation of 21.1% of revenue plus operating spending of 8.5%. Credits and grants are shown as upper bounds: the split of NT$284.9B of other investing sources is not disclosed, the U.S. credit depends on when construction starts, and I count the credit only in the years named. The bull revenue path alone reaches the price. Of the next three single changes (the margin held, 2 points more growth, bull plant productivity) any two together do: NT$2,450, NT$2,424 and NT$2,477. Source 3Q26 release and presentation; 3Q26 management report; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation; 4Q25 call; 20-F 2025; Board resolutions, 12 May 2026 [14][15][17][21][24][26][5][41]. Judgements are my estimates.
The downside changes are larger: growth 2 points lower gives NT$1,841, a return on new plant of 15% from year ten gives NT$1,724, Customer A’s 19% of revenue moving to a rival in year two gives NT$1,558, and AI accelerators growing at half the company’s rate gives NT$1,500 (estimate).526
What would widen it, one change at a time
Base-case value per ordinary share when one assumption changes; everything else as in the base case. Lowest first.
| Change | Value | Against the Taiwan price |
|---|---|---|
| My base case | NT$2,006 | −15% |
| AI accelerators grow at half the company’s rate; revenue 22% lower from year three, plant for years 1 and 2 already committed | NT$1,500 | −37% |
| Return on new plant of 10.5%, equal to the discount rate, from year 10 on: further growth adds no value | NT$1,514 | −36% |
| Customer A’s 19% of revenue moves to a rival in year 2, plant for years 1 and 2 already committed | NT$1,558 | −34% |
| Return on new plant of 15% from year 10 on | NT$1,724 | −27% |
| Revenue growth 2 points lower in each of years 2 to 10 | NT$1,841 | −22% |
| Net plant per US$1 of revenue rises to 1.05 by year 10, from 0.94 | NT$1,842 | −22% |
| Return on new plant of 20% from year 10 on | NT$1,847 | −22% |
| Discount rate of 11.0%, the capital asset pricing model with the 5-year beta | NT$1,875 | −21% |
| Margin before depreciation 2 points lower in every year | NT$1,913 | −19% |
| Tax rate of 20% instead of 18% | NT$1,951 | −18% |
The terminal rows test the base case's 35% return on new plant. The first and third rows are stress tests of concentration, not cases; my bear case (NT$887) is the full pause. The AI row takes calendar-2029 revenue from US$311B to US$242B, the amount by which AI accelerators at half the company's rate fall short. Source 3Q26 release and presentation; 3Q26 management report; 2Q26 release and presentation; 1Q26 release and presentation; 4Q25 release and presentation; 4Q25 call; 20-F 2025 [14][15][17][21][24][26][5]. Judgements are my estimates.
What the cases leave out
The cases hold no cross-strait conflict, no blockade and no tariff beyond today’s. The 20-F says financial markets have viewed past developments between the R.O.C. and the P.R.C. as occasions to depress share prices, and it does not quantify a conflict.5 Neither do I. Most executives and the principal production sit in the R.O.C., and 80.0% of noncurrent assets are in Taiwan.5 The table is arithmetic only: the cash stays and the operating value is multiplied by one minus a chance.
A haircut for the risk my cases leave out
Base value per ordinary share if the operating business, but not the NT$114 a share of cash and investments, is lost with a given chance. Arithmetic, not a forecast.
| Chance of losing the operating business | Base value | Against the Taiwan price |
|---|---|---|
| 0% | NT$2,006 | −15% |
| 5% | NT$1,911 | −19% |
| 10% | NT$1,817 | −23% |
| 20% | NT$1,628 | −31% |
| 44%, where the base value falls to the margin-of-safety price | NT$1,180 | −50% |
Each 5 points of chance takes NT$95 off the base value. I do not put a number on the chance; the 2025 20-F does not quantify a conflict either. Source 20-F 2025; 3Q26 release and presentation [5][14]. Judgements are my estimates.
Trade rules also move. The 20-F lists a Section 232 proclamation of a 25% tariff on certain advanced computing chips unless imported for designated U.S. use. It says the Supreme Court struck down the IEEPA reciprocal tariffs in February 2026, a Section 122 replacement followed, Section 301 investigations that include Taiwan opened in March, and the effect on the January agreement capping reciprocal tariffs at 15% is unclear. It gives no dollar effect.5
Other uses of the same dollar
The Treasury yield I use is 5.00%.303132 At NT$2,370 my base case returns 7.8% a year over ten years, 2.8 points more, with a bear value 63% under the price (calculated).514 The closest comparison on this site is NVIDIA, which sells into the same AI demand: 9.3% a year on its base case, same ten-year basis.
Two different questions
How good is the business, and how good is the price? TSMC took 72.5% of foundry revenue in the second quarter and earned 59% on net plant. The price is 18% above my base value. This looks like a great business at a price that already pays for much of the good outcome. The price needs two of three things: today’s margin held, growth 2 points faster, or more revenue per plant dollar. At one chance in three each, two or more come true about 26% of the time (estimate).26
The margin of safety
- PriceNT$2,370.00Close, Q4 2026 [50]
- Base valueNT$2,006My estimate (estimate)
- Margin of safety belowNT$1,180set from my bear case: the price at which the bear value is 75% of the price paid (calculated)
I set the margin of safety from the bear case instead of as a discount to the base value, because one cycle and one geography drive this business. At NT$1,180 the bear case is worth NT$887 discounted at 10.5%, 25% under the price, and the bear cash flows still return 8.4% a year over fifteen years; the base case returns 15.5% a year (estimate). That return does not cover Taiwan: the base value falls to NT$1,180 if the chance of losing the operating business is 44%. NT$1,180 is 14% below the NT$1,375 close of November 2025, the lowest of the past year, so the stock has not traded at that price in a year.33 At that price TSMC would trade at 12.0 times trailing earnings and 8.6 times my next-twelve-month estimate, and the Taiwan line equals US$181 an ADR at parity (estimate).143 The price sits 101% above the margin-of-safety price.
What the price buys in each case
Value against price, and the yearly return my cash flows give at that price.
| At a price of | Bear value | Base value | Bull value | Return a year: bear, base, bull |
|---|---|---|---|---|
| NT$2,813, the ADR price per ordinary share (Q4 2026) | −68% | −29% | +9% | 4.9%, 8.4%, 11.0% |
| NT$2,370, the Taiwan close (Q4 2026) | −63% | −15% | +29% | 5.3%, 9.4%, 12.3% |
| NT$1,180, the margin-of-safety price | −25% | +70% | +159% | 8.4%, 15.5%, 19.6% |
| NT$1,375, the Taiwan 52-week low close (November 2025) | −35% | +46% | +122% | 7.5%, 13.8%, 17.6% |
Source Yahoo Finance, TSM; TWSE, 2330; Yahoo Finance, TWD=X; Yahoo Finance, one year [49][50][3][33]. Judgements are my estimates.
Where this could be in 5 and 10 years
Value per share in 5 and 10 years
Value per ordinary share in New Taiwan dollars from my model, with years running October to September.
| Case | Value per share, September 2031 | Value per share, September 2036 | Owner cash paid out per share, to September 2036 | Return a year, NT$2,370 today to September 2036 |
|---|---|---|---|---|
| Bear | NT$1,027 | NT$1,177 | NT$656 | −2.9% |
| Base | NT$2,550 | NT$2,995 | NT$1,502 | 7.8% |
| Bull | NT$4,154 | NT$5,081 | NT$2,081 | 13.6% |
Value in a year is the present value at that date, at 10.5%, of the free cash flow after it, per today's 25.932B shares, in that year's New Taiwan dollars at NT$32.57 to the dollar. It includes the NT$114 a share of net cash I add today. Owner cash is the model's free cash flow for years 1 to 10, treated as paid out and not discounted. The return is the yearly rate at which NT$2,370 grows into that cash plus the year-10 value. Values and returns are my estimates.
For the base to be right at five years, revenue has to reach US$366B by September 2031, up from US$157B now. The margin before depreciation stays near 69% and capital spending near 26% of revenue. For ten years it needs US$474B, a margin of 68%, and each new dollar of plant still supporting about 90 cents of new revenue (estimate). At year 10, 70% of the base value is the terminal value, so that figure leans hardest on my 3% growth after year 15 and my 35% return on new plant. The base returns 7.8% a year, below the 10.5% I discount at, because the price starts above my value.
The cases split on revenue and margin. The discount rate is 10.5% in all three. The bear has revenue falling 19.8% in year two and a margin before depreciation of 62%, so year-10 revenue is US$234B. The bull has US$641B at a margin near 72%. That is 2.7 times the revenue and 4.3 times the value at year 10 (calculated).
The most likely way the base is wrong is plant. TSMC says 2-nanometer capacity costs substantially more to build than 3-nanometer. If a dollar of revenue needed US$1.05 of plant by year ten, the base value today would be NT$1,842 instead of NT$2,006 (estimate).
A reader's guide: these are estimates of value, not forecasts of the share price, and the market price can sit above or below value for years.
The case for the price
What most people miss
Most of TSMC’s growth now comes from each wafer earning more. In 3Q26 dollar revenue rose 41.2% on the year and wafers shipped rose 9.6%.15 Revenue per wafer went from about US$8,100 to about US$10,440, up 29% (calculated). That counts packaging and test. Much of the rise looks like mix: 2- and 3-nanometer chips went from 23% of wafer revenue to 41%.15 Capacity has usually grown in the mid to high single digits a year.16
TSMC does not normally add capacity to a node that has reached its target. For 3-nanometer it planned three new fabs, added a fourth in Tainan on the October call, and is converting 5-nanometer tools.1916 My reading: converted tools stretch a dollar of new plant.
The bull case
On 15 October C.C. Wei said the gap between demand and supply is still quite big, and that AI accelerator growth will probably beat the guided mid-to-high-50s rate. He also said there is “no ceiling” on profitability, though no jump overnight.16
I have Gavin Baker of Atreides secondhand, from a 24/7 Wall St. report on his May podcast. It quotes him saying the wafer shortage, which TSMC controls, will prevent a bubble. If TSMC did what Jensen Huang wanted, he said, Nvidia’s GPU sales could reach US$2 trillion in 2026 or 2027. He also said companies are starting to go to Intel and Samsung.56 His fund’s 13F for 30 June lists no TSMC position.54
I haven’t read the broker notes either. Taiwan press reported Citi at NT$4,000 on 8 October, above my bull value, expecting 2027 revenue growth above 40%.6061 In July it saw wafer prices rising through 2027.57 After the results, MarketBeat’s tracker shows Needham at US$560 and Barclays at US$670 for the ADR. My bull value is about US$469 an ADR.62
Brad Gerstner’s Altimeter reported 1,429,355 ADRs at 30 June, up 4.7% in the quarter and 6.9% of its 13F total.5253 ARK’s ARKK fund had 167,325 ADRs on 30 October, 1.00% of the fund.55 I found no public case on TSMC from Gerstner or Cathie Wood, only these positions.
Against reality
This is about the Taiwan price of NT$2,370. The ADR at US$431.81 needs US$800B of revenue in year ten, more than my bull case (estimate).49
My model offers three levers. Keep today’s 73.1% margin before depreciation for fifteen years. Grow revenue 2 points a year faster than my base. Or earn US$1.00 to US$1.20 of new revenue on each new dollar of plant, against my US$0.85 to US$0.92. Any two reach NT$2,424 to NT$2,477 (estimate). Only my full bull revenue path does it alone. So if TSMC pulls two of those levers and beats its targets, the price is possible. Today’s numbers don’t show that yet: the price is 18% above my base value and no lever is proven.
The company’s January path is about US$275B of revenue in 2029. My base is US$311B, and 2 points of extra growth makes it about US$323B, 18% above that path (estimate).26 TSMC has not updated the path, though 2026 growth has gone from about 30% to about 44%.2614
Revenue is close: the 4Q26 guide annualizes to US$213B, 4% under the US$223B my base needs for the year to September 2027 (calculated).14 Margin is harder. The last twelve months sit at 73.1%, but the 4Q26 guide implies 71.5%, and management expects overseas fabs to cost 3 to 4 points of gross margin.1416 Plant is the least proven. Spending is 33% of revenue, and TSMC says 2-nanometer capacity costs substantially more to build than 3-nanometer.1426 The CFO’s answer is that revenue will outpace spending if TSMC does its job.16
What they have to hit
Six numbers, each published on a schedule. The first three rows are the three levers, and the case needs two of them. Year one ends September 2027 and year three September 2029.
| Indicator | Today | What the case needs | Where to track it | Next check |
|---|---|---|---|---|
| Revenue | US$46.7B in 3Q26; US$52.3B to 54.3B guided for 4Q2614 | US$223B in the year to September 2027, so 1Q27 to 3Q27 average US$56.6B (estimate). Then 21% growth in year two, against my 19% | TSMC monthly revenue page (opens in a new tab) (NT$); management report (opens in a new tab), Net Revenue (US$ billions) line5859 | 10 November 2026: October sales |
| Gross margin | 66.4% in 3Q26; 65% to 67% guided for 4Q261514 | 65% or more through the 2-nanometer ramp, then about 60.5% in year ten, against my 55.4% (estimate) | Management report (opens in a new tab), Gross Margin line, page 159 | 4Q26 report, expected January 2027; date not yet published |
| Capital spending against revenue | 33% of revenue in the last twelve months (calculated); US$60 to 64B budgeted for 202614152516 | A 2027 budget growing more slowly than revenue, then under my 29% of revenue by year three (estimate) | 4Q26 call, capital budget remarks; management report (opens in a new tab), section V59 | 4Q26 call, expected January 2027 |
| Revenue per wafer | About US$10,440 in 3Q26, up 29% on the year (calculated)15 | About US$13,300 by year ten, which is 5% a year from 2025. Today is ahead of that pace. Even there my base needs 2.1 times today’s capacity (estimate) | Management report (opens in a new tab), summary table: Net Revenue (US$ billions) over Wafer Shipment59 | 4Q26 report, expected January 2027 |
| High performance computing revenue | 68% of 3Q26 revenue, about US$31.8B (calculated)15 | No down year; my bear case has it falling 25% in year two. AI accelerators near US$127B in 2029 (estimate) | Management report (opens in a new tab), Net Revenue by Platform table, a percent to multiply by Net Revenue. AI accelerators are not on it; TSMC gives those only on some calls59 | 4Q26 report, expected January 2027 |
| Foundry share | 72.5% in 2Q26, TrendForce ranking28 | Above my 68% warning line, with no large 2-nanometer product moving to a rival | TrendForce press center (opens in a new tab), quarterly top ten foundries ranking28 | 3Q26 ranking, expected around December 2026; the last three came in March, June and September |
Source 3Q26 release and presentation; 3Q26 management report; 3Q26 call; TrendForce, 2Q26 foundry ranking [14][15][16][28]. Judgements are my estimates.
Where I come down
Revenue per wafer moved me most. It shows TSMC can outgrow its wafer count. Today’s margin lasting fifteen years did not move me, because management itself names the dilution ahead. Gross margin at 65% or more through the 2-nanometer ramp, and a 2027 budget growing more slowly than revenue, would raise my values.
Risks, and what would change my view
- AI demand and the build-out cycle. HPC was 68% of 3Q26 revenue, and the CEO said demand is above supply by a wide gap.1516 If AI customers pause, TSMC’s fixed costs and a plant budget of US$60 to 64B meet falling revenue at once.519
- Capital intensity and depreciation. Capital spending is 33% of revenue and 2.2 times depreciation. Depreciation rose 35% in 3Q26.15 A 2027 plant budget that grows faster than revenue would lower my base value.
- Margin dilution. The 2-nanometer ramp costs 3 to 4 points of gross margin in the second half of 2026 and overseas fabs 2 points, rising to 3 to 4 points.1916 The 4Q26 gross margin guide of 65% to 67% is down 40 basis points at the midpoint.14
- Customer concentration. The ten largest customers are 78% of revenue. Customer A is 19% and grew 106% in 2025.5 A change at one customer moves the total.
- Taiwan. 80.0% of noncurrent assets, most executives and the principal production are in the R.O.C.5 The cases do not price a conflict.
- Trade and export controls. The Nanjing fab’s validated end-user status expired in December 2025 and was replaced by an annual license. China was 9% of 2025 revenue and 5% of 3Q26 revenue. The Section 301 investigations opened in March 2026 include Taiwan.515
- Exchange rate. Substantially all sales are in US dollars and over half of capital spending is in other currencies. Each 1% fall in the dollar costs 0.3 point of operating margin.5
- Natural hazards and utilities. Earthquakes in April 2024 and January 2025 cost about NT$3B and NT$5.3B net of insurance. The 20-F lists power outages, higher electricity prices and drought-related water limits as risks.5
- Succession. The CEO is in the 71 to 75 age band, the committee reviews the pipeline, and no successor is named.5
- The ADR premium. A holder at US$431.81 pays 18.7% more than the Taiwan line for the same share, and the premium has ranged from 7.0% to 29.7% in a year.334950
What would change my view
The figures I will check each quarter, today's reading, and the thresholds. The next report is for the fourth quarter. TSMC has not published the date; the 4Q25 call was on 15 January. Monthly sales for October come on 10 November.51
| Signal | Today | Raises my value | Lowers my value |
|---|---|---|---|
| Revenue against the guide | US$52.3B to 54.3B guided for 4Q26; full-year 2026 growth around 44%14 | Another quarter above the top of the range | A quarter at the bottom of the range, or 2027 growth guided below 20% |
| Gross margin | 66.4% in 3Q26; 65% to 67% guided for 4Q2614 | At or above 65% through the 2-nanometer ramp | Below 60% for two quarters, the 2025 level5 |
| Capital spending | US$60 to 64B budgeted for 2026; US$40.6B spent through 3Q1519 | 2027 spending growing more slowly than revenue | 2027 spending above 40% of revenue while growth falls under 25% |
| Depreciation | NT$220.2B in 3Q26, up 35% on the year, 14.7% of revenue (calculated)15 | Growth below revenue growth | Above 20% of revenue |
| Customer concentration | Ten largest customers 78% of 2025 revenue; the largest 19%, the second 17%5 | The ten largest falling while revenue rises | The ten above 82%, or one customer back above 25% |
| Capacity deposits | Temporary receipts NT$189.9B at the end of 2025, down 35% in a year5 | Receipts rising again with capacity sold out | Receipts falling further while the CEO still reports demand above supply |
| Share and rivals | 72.5% in TrendForce’s ranking; Samsung Foundry 5.9%28 | Share above 75% | Share below 68%, or a large customer moving a volume 2-nanometer product to Samsung or Intel3829 |
| Government money | NT$284.9B of other investing sources in the TTM, split not disclosed; my estimate of credits and grants is 11% of capital spending15182225 | A disclosed split showing credits and grants above 15% of capital spending, or credits continuing after 2026 construction starts | Repayment or forfeiture of CHIPS Act amounts5 |
| Exchange rate | NT$32.57; the 4Q26 guide assumes NT$31.8; 1% of dollar weakness cuts operating margin about 0.3 point3145 | A weaker NT$ than 31.8 | A stronger NT$ than 31.8 |
Source Yahoo Finance, TWD=X; 20-F 2025; 3Q26 release and presentation; 3Q26 management report; 2Q26 management report; 2Q26 call; 1Q26 management report; 4Q25 management report; TrendForce, 2Q26 foundry ranking; Intel Q2 2026 results; Samsung 2Q26 results [3][5][14][15][18][19][22][25][28][29][38]. Judgements are my estimates.
What would raise my base value: gross margin holding at 65% or more through the 2-nanometer ramp, a 2027 plant budget that grows more slowly than revenue, and a disclosed split showing credits and grants above 15% of capital spending or credits that continue after 2026 construction starts. What would lower it: gross margin below 60% for two quarters, plant spending above 40% of revenue while growth falls under 25%, the ten largest customers above 82% of revenue, customer deposits falling further while demand is above supply, or a large customer moving a volume 2-nanometer product to a rival.141551926
Sources
- 1TSM (ADR) daily chart, close on 23 October 2026 (opens in a new tab)
- 22330 (TSMC ordinary share) daily trading data, October 2026, and the TWSE market summaries (no data for 23 October) (opens in a new tab)
- 3USD/TWD (TWD=X) daily chart, 23 October 2026 (opens in a new tab)
- 4Currency API, USD to TWD for 2026-10-23 (cross-check) (opens in a new tab)
- 5TSMC Form 20-F, fiscal year ended 31 December 2025 (opens in a new tab)
- 6TSMC Form 20-F, fiscal year ended 31 December 2024 (opens in a new tab)
- 7TSMC Form 20-F, fiscal year ended 31 December 2023 (opens in a new tab)
- 8TSMC Form 20-F, fiscal year ended 31 December 2022 (opens in a new tab)
- 9TSMC Form 20-F, fiscal year ended 31 December 2021 (opens in a new tab)
- 10TSMC Form 20-F, fiscal year ended 31 December 2020 (opens in a new tab)
- 11TSMC Form 20-F, fiscal year ended 31 December 2019 (opens in a new tab)
- 12TSMC Form 20-F, fiscal year ended 31 December 2018 (opens in a new tab)
- 13SEC XBRL company facts, TSMC (CIK 0001046179) (opens in a new tab)
- 14TSMC Form 6-K, 15 October 2026: third-quarter earnings release (Ex. 99.1) and presentation (Ex. 99.2) (opens in a new tab)
- 15TSMC 3Q26 quarterly management report (opens in a new tab)
- 16TSMC 3Q26 earnings conference call transcript (LSEG StreetEvents, edited) (opens in a new tab)
- 17TSMC Form 6-K, 16 July 2026: second-quarter earnings release and presentation (opens in a new tab)
- 18TSMC 2Q26 quarterly management report (opens in a new tab)
- 19TSMC 2Q26 earnings conference call transcript (LSEG StreetEvents, edited) (opens in a new tab)
- 20TSMC Form 6-K, 14 August 2026: consolidated financial statements for the quarter and half year ended 30 June 2026 (opens in a new tab)
- 21TSMC Form 6-K, 16 April 2026: first-quarter earnings release and presentation (opens in a new tab)
- 22TSMC 1Q26 quarterly management report (opens in a new tab)
- 23TSMC 1Q26 earnings conference call transcript (LSEG StreetEvents, edited) (opens in a new tab)
- 24TSMC Form 6-K, 15 January 2026: fourth-quarter earnings release and presentation (opens in a new tab)
- 25TSMC 4Q25 quarterly management report (opens in a new tab)
- 26TSMC 4Q25 earnings conference call transcript (LSEG StreetEvents, edited) (opens in a new tab)
- 27TSMC Form 6-K, 26 February 2026: consolidated financial statements for the years ended 31 December 2025 and 2024 (opens in a new tab)
- 28Global Foundry Revenue Approaches US$53.49 Billion in 2Q26 as SMIC Narrows Market Share Gap with Samsung (opens in a new tab)
- 29Intel Reports Second-Quarter 2026 Financial Results (opens in a new tab)
- 30U.S. Treasury Daily Par Yield Curve Rates, 2026 (opens in a new tab)
- 31Damodaran Online: implied equity risk premium (opens in a new tab)
- 32TSM and S&P 500 monthly charts, ten years (beta calculation) (opens in a new tab)
- 33TSM, 2330.TW and USD/TWD daily charts, one year (opens in a new tab)
- 34Taiwan Stock Exchange market holiday schedule, 2026 (opens in a new tab)
- 35GlobalFoundries Form 6-K: second quarter 2026 financial results (5 August 2026) (opens in a new tab)
- 36United Microelectronics Corporation Form 6-K: second quarter 2026 results, Exhibit 99.6 (29 July 2026) (opens in a new tab)
- 37SMIC announcement to the Hong Kong exchange: unaudited results for the three months ended 30 June 2026 (13 August 2026) (opens in a new tab)
- 38Samsung Electronics Announces Second Quarter 2026 Results (31 July 2026) (opens in a new tab)
- 39TSMC Form 6-K, 16 October 2025: third-quarter 2025 earnings release (Ex. 99.1) (opens in a new tab)
- 40TSMC Form 6-K, 18 January 2024: fourth-quarter 2023 presentation (Ex. 99.2) (opens in a new tab)
- 41TSMC Form 6-K, 12 May 2026: board of directors meeting resolutions (first-quarter 2026 dividend) (opens in a new tab)
- 42TSMC Form 6-K, 11 August 2026: board of directors meeting resolutions (second-quarter 2026 dividend) (opens in a new tab)
- 43Taiwan Stock Exchange: reference prices for ex-right and ex-dividend stocks, 2026 (TWT49U) (opens in a new tab)
- 442330 daily trading data for December of each year, 2016 to 2025 (opens in a new tab)
- 452Q25 Foundry Revenue Surges 14.6% to Record High, TSMC's Market Share Hits 70%, Says TrendForce (opens in a new tab)
- 46AI Demand Drives 4Q25 Global Top 10 Foundries Revenue Up 2.6% QoQ, Says TrendForce (opens in a new tab)
- 47Strong AI Demand and Early Consumer Electronics Inventory Build Drive Top 10 Foundries to 3.7% QoQ Revenue Growth in 1Q26, Says TrendForce (opens in a new tab)
- 48SMIC narrows gap with Samsung as global foundry revenue hits record $53.49 billion (Evertiq, reproducing TrendForce's table) (opens in a new tab)
- 49TSM (ADR) daily chart, close on 29 October 2026 (opens in a new tab)
- 502330 (TSMC ordinary share) daily trading data, October 2026 (opens in a new tab)
- 51Financial calendar (opens in a new tab)
- 52Altimeter Capital Management, Form 13F-HR for 30 June 2026 (opens in a new tab)
- 53Altimeter Capital Management, Form 13F-HR for 31 March 2026 (opens in a new tab)
- 54Atreides Management, Form 13F-HR for 30 June 2026 (opens in a new tab)
- 55ARK Innovation ETF (ARKK) daily holdings file (opens in a new tab)
- 56Report on Gavin Baker’s remarks on Invest Like the Best (David Moadel) (opens in a new tab)
- 57Report on Citi raising its TSMC Taiwan target to NT$3,800 from NT$2,875 (opens in a new tab)
- 58TSMC monthly revenue (opens in a new tab)
- 59TSMC 2026 Q3 quarterly results page (opens in a new tab)
- 60Report on TSMC broker targets before the 3Q26 call, including Citi at NT$4,000 from NT$3,800 (opens in a new tab)
- 61Report on Citi raising its TSMC target to NT$4,000 and expecting 2027 revenue growth above 40% (opens in a new tab)
- 62TSM analyst ratings and price targets (opens in a new tab)
How the figures are labelled
(reported)Reported: taken from a filing or a price feed, as printed.
(calculated)Calculated: arithmetic on reported figures, such as a margin or a growth rate.
(estimate)Estimate: my judgement, such as a case value or a growth assumption.
The price
Close in Q4 2026: NT$2,370.00, from Taiwan Stock Exchange [50]. Retrieved in Q4 2026.
Fiscal years are calendar years. Figures are New Taiwan dollars (NT$), which is how TSMC reports. Annual figures follow the Form 20-F (IFRS Accounting Standards as issued by the IASB). TTM Sep 2026 adds the four quarters from October 2025 to September 2026, taken from TSMC's quarterly reports, which use Taiwan-endorsed IFRS. The two bases differ in when the surtax on undistributed earnings is booked, so net income and EPS are on the Taiwan basis in the TTM and on the 20-F basis in the annual columns; revenue, gross profit and operating income are the same on both. One ADS equals five ordinary shares; all per-share figures are per ordinary share. The exchange rate used is NT$32.57 per US$ (Yahoo Finance, Q4 2026). The US$156.6B of TTM revenue is the sum of TSMC's reported US-dollar quarterly revenue, which averages NT$31.59 to the dollar. NT$4,945B at NT$32.57 would be US$151.8B.
The valuation
Fifteen-year discounted cash flow on free cash flow, built in US dollars at a constant NT$32.57 and divided by 25.932B ordinary shares: ten years from revenue, margin before depreciation, depreciation from net plant, an 18% tax rate, net new plant and working capital, then five years in which growth fades to the long-run rate, at a 10.5% discount rate, the midpoint of the capital asset pricing model's range of 9.9% to 11.0%. Net cash reserves and long-term investments, less non-controlling interests, lease liabilities and the NT$7 dividend that went ex on 16 September (NT$2,953B in all), are added. Values are as of 30 September 2026, the last balance sheet; dating them from Q4 2026 adds about 0.6%. Per ordinary share; one ADR is five.
The margin-of-safety price is NT$1,180, set from my bear case: the price at which the bear value is 75% of the price paid. No rating: the page states a range and the price, and leaves the decision to the reader.
Research, not investment advice. Figures as of .
Legal information and disclosures
These are my own views as of the update shown on this page. They can change without notice, and I have no duty to update them. Past performance does not indicate future results, and any investment can lose money.
This is for education only. It is not investment, legal, tax or accounting advice, and it is not an offer to sell or a solicitation to buy any security in any jurisdiction. It does not consider your goals or circumstances.
Figures from company filings and other third parties are believed to be reliable, but I have not independently verified them and cannot guarantee them. Bear, base and bull values, and anything marked as an estimate, are my own and rest on assumptions that may prove wrong.
Please do not copy or republish this material without my written consent.