TSMC: Riding the AI Wave While Navigating Global Risks

Few companies occupy a position as important as Taiwan Semiconductor Manufacturing Company (TSMC). The company produces more than 90% of the world's most advanced semiconductors and counts Nvidia, Apple, AMD, and Broadcom among its largest customers. As demand for AI infrastructure has increased, TSMC has been one of the main beneficiaries thanks to its leading position in advanced semiconductor manufacturing.

The company's recent results reflect this strength. According to the Financial Times, TSMC's latest quarterly net profit increased by almost 69% year-on-year to over USD 23 billion. Earlier reports also showed strong growth in 2026, supported by demand for AI-related chips. TSMC's US-listed shares trade around USD 430, representing an increase of over 40% year-to-date. However, past performance is not necessarily a reliable indicator of future returns.

Management continues to prepare the company for long-term demand. In July, TSMC increased its planned capital expenditure for 2026 from around USD 50 billion to approximately USD 60 billion, a figure which was reaffirmed this level in its third-quarter report.

Such investments are intended to expand manufacturing capacity and advance process technology. The scale of the spending suggests that management expects demand for advanced semiconductors, particularly those related to AI, to remain strong in the coming years.

The company is also investing heavily in the United States. According to Bloomberg, TSMC has pledged around USD 265 billion in Arizona manufacturing operations, reflecting both growing opportunities in the US market and efforts to diversify production outside Taiwan amid geopolitical tensions between China and Taiwan.

In October, the same reports also suggested that TSMC could partner with Elon Musk's proposed Terafab facility, potentially providing additional chip manufacturing capacity for Tesla and SpaceX. If realised, such a partnership would complement TSMC's broader US expansion strategy, further increasing its exposure to the demand for advanced semiconductors used in areas such as artificial intelligence, autonomous driving, and space technologies.

Analysts continue to monitor the company's investment programme and earnings outlook closely. According to Bloomberg, several analysts covering TSMC are optimistic about future earnings growth and have published price targets above the current share price. Some estimates put fair value at over USD 500 per American depositary receipt (ADR), compared with the current share price of around USD 430. However, analyst forecasts and price targets are inherently uncertain and may change as market conditions evolve.

While demand remains strong, investors should also consider the potential risks. The AI investment cycle has become less straightforward than it was earlier in the year. Uncertainties surrounding AI regulation, adoption rates and monetization have led to periods of weaker sentiment across the sector. A slowdown in AI infrastructure spending could eventually affect demand for TSMC's products.

Higher interest rates present another challenge. Rising borrowing costs can make large-scale technology investments less attractive and may slow spending across parts of the AI ecosystem.

Geopolitics remains the most difficult risk to assess. TSMC's manufacturing base is concentrated in Taiwan, which make the company vulnerable to disruptions resulting from tensions between China and Taiwan. Any escalation could affect both TSMC and the broader semiconductor supply chain.

Some observers also point out that China is steadily expanding its domestic semiconductor industry. Greater self-sufficiency could reduce the country's reliance on imported chips over time, potentially altering the strategic and economic considerations surrounding Taiwan's role in the global semiconductor market.

TSMC remains one of the most important companies in the global semiconductor industry. Its record profitability, strong demand for advanced semiconductors, and significant investment in future capacity support the company's long-term growth prospects.

At the same time, TSMC remains exposed to cyclical technology spending, changes in market sentiment, and geopolitical developments. While analysts generally expect continued growth, future performance will depend on various factors, such as the pace of AI adoption, customer demand, competitive dynamics, and broader economic conditions.