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This AI Chip Giant Could Be the Market's Next Big Winner
Written by Gabriel Osorio-Mazilli. Published 10/17/2025.
Key Points
- Taiwan Semiconductor posted stronger-than-expected quarterly results, highlighting its pricing power and near-monopoly status in the semiconductor industry.
- The company reported 40.8% year-over-year revenue growth and 59.5% gross margins, both signaling robust fundamentals and improving shareholder returns.
- Analysts project upside potential, making TSM a lower-volatility play on the ongoing artificial intelligence and chip sector boom.
Talk of an artificial intelligence (AI) bubble has been on the rise in mainstream media and some executive commentaries. That's a normal reaction to the bullish—parabolic even—price action in the technology sector, especially for names tied to chip and semiconductor production. Yet amid the hype, one name stands out as a disciplined, strategic way to play the trend.
After reporting better-than-expected quarterly earnings on Oct. 16, Taiwan Semiconductor Manufacturing (NYSE: TSM) stock began the trading day with a 0.5% rally.
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Click here to stream The Final Displacement for freeThe more important story is beneath the surface: even with Wall Street expectations already elevated, Taiwan Semiconductor beat the Street, underscoring the strength of its business and its central role in powering the AI revolution.
Breaking Down the Numbers: Taiwan Semiconductor's Growth Engine
Double-digit percentage growth is typically seen in smaller companies. So when a $1.2 trillion company posts a 40.8% increase in revenue year over year, it stands out.
This revenue jump reveals several key points for prospective or existing shareholders. First, pricing power remains intact despite recent geopolitical tensions—particularly tariff uncertainty as the United States seeks to onshore semiconductor manufacturing capacity.
Second, TSM's dominant market position has strengthened its industry standing. Management had estimated gross profit margins of 55.5% to 57.5%, but the company reported a much higher 59.5%.
That ability to outperform expectations and expand margins should translate into higher net income margins and earnings per share (EPS), ultimately supporting stronger valuations. Notably, net income margin rose from 42.8% in the same quarter last year to 45.7% this quarter.
With this level of profitability, Taiwan Semiconductor is well positioned to reinvest earnings into expansion and efficiency. Its return on equity (ROE) of 37.8% sits well above most peers; for comparison, Advanced Micro Devices Inc. (NASDAQ: AMD) reported an ROE of 4.7%.
Even better, management now guides gross margins of 59% to 61% for the fourth quarter of 2025, which should be accretive to EPS and ROE and further support valuation upside.
Analysts Raise the Bar After Blowout Quarter
TSM's muted post-earnings rally may seem underwhelming at first glance, but the broader macro environment helps explain the reaction. The United States is still navigating the possibility of a government shutdown, and tensions with China remain elevated, particularly around rare earth exports.
Still, many on Wall Street are bullish. Analysts give TSM a consensus price target of $363.33, implying roughly 20.4% upside from today's price (and the potential for a new all-time high).
One analyst, Susquehanna's Mehdi Hosseini, raised his price target from $300 to $400, implying about 32.5% upside.
For investors who want exposure to AI and chip growth without the wild swings of smaller names, TSM offers a compelling mix of momentum and stability. Its lower volatility profile, strong fundamentals and rising analyst targets make it one of the AI-related stocks that could still deliver significant upside without the downside risk typical of newer, less-established peers.
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