TSMC: Accelerating Its Market Dominance
Rarely do investors come across a business so dominant that competing is largely seen as a waste of capital. TSMC has the first-mover advantage as the most advanced foundry in the world, while competitors would require immense amounts of capital expenditure investments over several years to catch up, with no guarantee of competitive yields. In the meantime, TSMC is unlikely to remain stagnant.
Company profile
Theme: AI, Direction: Buy
Symbol: TSM (2330), Exchange: NYSE (TWSE)
Sector: Technology, Industry: Semiconductors
Fair intrinsic value: $203.29 (+4%), as of May 28, 2025
Market capitalization: $749 722 million
Pricing data: P/S 9x, P/E 21x
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Advanced nodes (7nm and lower) have been compounding growth at 67% annually from 2018 through 2024. This is also the product segment that is powering the AI infrastructure and high-performance computing (HPC) needs across the globe, as Nvidia and AMD both utilize TSMC fabs for manufacturing. Advanced nodes accounted for 69% of TSMC’s revenues in 2024, up from 9% in 2018. During the same years, operating margins improved to 46% from 37%, showcasing the pricing power advanced nodes have.
This has led TSMC to double their market share from 8% in 2016 to 15% in 2024. The two closest competitors are Samsung Foundry and Intel. Neither is advanced enough to broadly compete with TSMC for HPC needs. Other foundries primarily focus on more mature nodes or act as specialty foundries.
Figure 1: Global semiconductor market share, $ millions
TSMC is monopolistically positioned to serve AI and HPC demand, protected by immense barriers to entry. While there are fears regarding tariff implications on TSMC, recent developments lean towards -20% exemptions. North America accounts for 70% of TSMC’s revenue, and the current and near-term capacity is not close to satisfying U.S. demand (currently at 1.5% of TSMC’s annual capacity). The U.S. is reportedly interested in staying competitive in the AI race, which means that TSMC is unlikely to see significant impact from tariffs. If the company were to be subject to tariffs, TSMC’s dominant position would enable most costs to be passed on to customers.
Figure 2: Growing while expanding, $ millions
Management correlates accelerated growth with increased capital expenditure spending. Offsetting revenues by one period, there’s a 93% correlation between capital expenditures and revenue from 2015 to 2024. This implies high efficiency in capital allocation.
Risks: TSMC faces substantial geopolitical risk due to its Taiwan location amid regional and strategic tensions.