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SUMMARY
Parkev Tatevosian, CFA, analyzes Taiwan Semiconductor Manufacturing Company's latest quarterly results, highlighting robust revenue growth and exceptional profit margins driven by high demand in artificial intelligence. The discussion covers the company's operational efficiency, segment performance, and updated valuation outlook for long-term investors.
MAIN POINTS
- Taiwan Semiconductor stock has risen over 34% in 2026, with a buy recommendation issued when the price fell below $325 per share.
- Quarterly revenue increased by 6.4% to $36 billion, surpassing management's guidance and reflecting strong demand from major clients.
- Gross profit margin rose by 3.9 percentage points to 66%, attributed mainly to higher capacity utilization rates and cost improvements.
- Operating profit margin improved to 58.1%, placing TSMC among the most profitable manufacturing companies globally.
- High performance computing now accounts for 61% of revenue, overtaking smartphones, and free cash flow projections have been revised upward.
- The intrinsic value per share is updated to $578, with the current market price at $402, indicating a favorable buying opportunity.
DETAILED ANALYSIS
Taiwan Semiconductor Manufacturing Company (TSMC) has experienced a significant appreciation in its stock price, rising over 34% in 2026. This growth follows a period when the stock was recommended as a buy after dipping below $325 per share. The company recently reported quarterly financial results that exceeded expectations, with revenue climbing 6.4% from the previous quarter to reach $36 billion, surpassing management’s already optimistic guidance.
This revenue surge is largely attributed to the ongoing boom in artificial intelligence, which has driven increased demand from major clients such as Nvidia, AMD, Apple, Tesla, and Intel.
A notable aspect of TSMC’s performance is the resilience and improvement of its gross profit margins, which increased by 3.9 percentage points sequentially to 66%. This margin expansion is primarily due to higher capacity utilization rates, cost improvements, and favorable foreign exchange movements. The company’s ability to operate near its maximum effective manufacturing capacity allows it to spread fixed costs over a larger number of units, thereby reducing per-unit production costs and boosting profitability.
Operating profit margins also improved, rising by 4.1 percentage points to 58.1%. These figures are exceptional for a manufacturing firm, placing TSMC among the most profitable companies in the sector globally, with only a few firms like Nvidia and Visa achieving comparable margins.
The company’s revenue mix has shifted substantially, with high performance computing (HPC) now accounting for 61% of total revenue, up 20% quarter over quarter. This segment has overtaken smartphones, which now contribute just 26% of revenue, reflecting broader industry trends and TSMC’s strategic positioning in AI-related manufacturing. In response to these strong results, free cash flow projections have been revised upward by approximately $5 million annually, representing a 10-15% increase over previous estimates.
The intrinsic value per share has been recalculated to $578, while the current market price stands at $402, suggesting continued upside potential for long-term investors.
LINKS
- YouTube channel membership for early access, spreadsheets, and Discord community.
- Special Motley Fool Stock Advisor offer.
- Parkev Tatevosian's book on a six-step investing framework.
- Fiscal.ai investment research tool with viewer discount.
- Monthly newsletter via Substack.