A unique industrial model: the world's foundry
Founded in 1987 in Hsinchu by Morris Chang, TSMC (Taiwan Semiconductor Manufacturing Company) is the pioneer of the pure-play foundry model, an independent foundry that manufactures semiconductors on behalf of designers without factories (the famous fabless companies). This positioning as a universal silicon workshop has revolutionized the industry. Instead of competing with chip designers, TSMC has become their industrial arm. Apple, Nvidia, AMD, Broadcom, Qualcomm, and Intel itself all entrust TSMC with the production of their most advanced chips.
Today, the company controls nearly 60% of the global foundry market, and up to 90% for the most advanced engraving nodes (3 nm and 5 nm). This technological dominance is based on exceptional industrial expertise. TSMC has mastered the art of etching transistors just a few atoms wide, using ASML's extreme ultraviolet (EUV) lithography technologies.
The company remains faithful to its model of neutrality: it does not design its own chips and never competes with its customers. This promise of absolute loyalty has cemented commercial relations of a rare strength in the industry. In a world where trust is as strategic as technology, TSMC has become the essential ally of tech giants.
Semiconductor value chain diagram:
Source: EconomyCharts
Exceptional profitability fueled by technological leadership
TSMC is not only a technology leader: it is also a remarkably financially efficient company. Its operating margin is close to 50%, its return on invested capital exceeds 25%, while its share price is trading at 23x anticipated earnings, a justified premium compared to Samsung or Intel, which are much less profitable.
Share price performance (total return) of TSMC, Intel, and Samsung over a rolling 10-year period:
This performance is based on colossal barriers to entry: an annual investment cycle of $36bn, including $30bn in capex and $6bn in R&D. Each new generation of etching requires ultra-clean factories costing up to $28bn. A single EUV machine costs $380m, and dozens are needed for a complete production line. This kind of capital intensity makes competition virtually impossible.
By 2024, TSMC will have already mass-produced 3nm chips and is set to launch 2nm chips at the end of 2025. These chips will offer 30% more energy efficiency and 15% more speed than the previous generation. This lead gives TSMC unique pricing power: its customers have no credible alternative. A 10% increase in its prices would only add a few dollars to the cost of an iPhone or graphics card, a trifle for products sold for over $1,000.
Powerful growth drivers: AI, HPC and automotive
The core of the Taiwanese company's growth is the explosion in demand for high-performance computing (HPC), driven by artificial intelligence. Deep learning models require enormous computing power, mobilizing tens of thousands of graphics processing units (GPUs) produced by Nvidia, which are themselves manufactured exclusively by TSMC.
Major cloud players (Amazon AWS, Microsoft Azure, Google Cloud) deploy millions of chips in their data centers. Each training server for language models carries between four and eight GPUs, and a single data center can require several million advanced semiconductors.
However, the momentum doesn't stop there: electric vehicles, the Internet of Things (IoT), robotics, and 5G infrastructure are also fueling demand. An electric car incorporates up to 3,000 chips, compared to just 1,000 for a combustion engine. TSMC is therefore benefiting from a double boost: more volume and more added value per chip.
The High Performance Computing segment now accounts for more than 50% of sales, compared with 43% in 2023. Analysts anticipate revenue growth of 30-35% in 2025 and average EPS growth of around 15% p.a. over the next five years.
Results on October 16, 2025: heading for an historic record?
The next quarterly results, due out on October 16, 2025, could mark a turning point. The consensus expects TSMC to report record net income of
TWD 407bn for Q3, up 26% year-on-year. Any performance above TWD 398.3bn would set a new all-time high, confirming seven consecutive quarters of growth.
Quarterly revenue, already reported, jumped 30%, exceeding even the most optimistic market expectations. This surge is due to strong orders from Apple, Nvidia, AMD, and Broadcom, as well as insatiable demand from AI data centers. Margins are expected to remain robust, at around 57%-58% for its gross margin and 47%-48% for its operating margin, despite rising energy costs in Taiwan and massive investments abroad.
TSMC should continue to outperform its competitors as the exponential growth of AI infrastructure leaves only one credible partner. We can expect annual revenue growth of 30%-35% in 2025, thanks to a combination of increased volumes and higher average prices.
This publication will be scrutinized all the more closely as TSMC presents its outlook for Q4 and 2026 during its conference call. Investors are waiting for indications on the ramp-up of 2 nm, CoWoS packaging capabilities, and the potential impact of the US tariffs recently mentioned by President Trump.
But for now, the market sees this as nothing more than background noise: the stock has already risen 30% so far this year, with Taiwan's Taiex index having increased nearly 17%, driven by the ripple effect of the national champion.
Global expansion and lever of technological sovereignty
TSMC is no longer just an industrial player: it is a geopolitical asset. Its dominance, representing nearly 25% of Taiwan's GDP and 30% of national market capitalization, gives the company a unique strategic weight. Aware of its systemic responsibility, the company is accelerating its geographic diversification.
It is investing $165bn in new factories in Phoenix (Arizona), Kumamoto (Japan), and Dresden (Germany) to reduce its dependence on Taiwan and reassure its American and European customers. These facilities, supported by the US Chips Act and Japanese and European subsidies, should reduce the perceived geopolitical risk while opening up new growth opportunities.
While these projects will temporarily weigh on margins (dilution of 2%-3% according to management), they will strengthen the sustainability of the model. Ultimately, TSMC will be able to produce on several continents, balance its supply chains, and protect its customers against any disruptions linked to Sino-American tensions.
Risks: fear and reality
The primary risk remains geopolitical. The Taiwan Strait remains a major point of friction between Washington and Beijing. In the event of conflict, the impact on global supply chains would be devastating. However, the likelihood of a direct confrontation remains low: China itself depends on Taiwanese chips for its economy and military ambitions. An invasion would destroy the industrial base it covets.
The second risk is macroeconomic. If demand for AI infrastructure were to slow, TSMC would feel the effects. But here again, the trends remain favorable. The widespread use of AI in businesses, connected objects, autonomous vehicles and humanoid robots is fueling structural growth in demand for advanced semiconductors.
Finally, the costs of international expansion could temporarily weigh on margins. The new factories in Arizona and Germany have higher labor and energy costs than those in Taiwan. But management anticipates rapid compensation through economies of scale and cost sharing with strategic customers.
A bet on necessity
However, trading at 23x expected earnings, TSMC is not a cheap stock, although its valuation remains consistent with its growth and unique positioning.
On October 16, 2025, when its results are released, it will not just be another record quarter. It will be confirmation that TSMC remains the backbone of the artificial intelligence revolution, a player whose dominance is not threatened but rather consolidated. And in this market, where geopolitical fears often cloud over reason, quarter after quarter TSMC continues to demonstrate that necessity always triumphs over fear.
