Morningstar

TSMC Earnings: Tesla Talks and Texas Expansion Could Boost Stock

We think TSMC stock is moderately undervalued.

logo of Taiwan Semiconductor Manufacturing on a building.
Annabelle Chih via Getty
Securities in This Article
Taiwan Semiconductor Manufacturing Co Ltd ADR
(TSM)

Key Morningstar Metrics for TSMC

  • Fair Value Estimate
    : $534
  • Morningstar Rating
    : ★★★★
  • Morningstar Economic Moat Rating
    : Wide
  • Morningstar Uncertainty Rating
    : Medium

What We Thought of TSMC’s Earnings

In its third-quarter earnings release, Taiwan Semiconductor Manufacturing kept its 2026 capital expenditure unchanged but signaled more aggressive capex beyond 2026. It confirmed talks with Tesla but said any agreement would require TSMC TSM to control fab operations.

Why it matters: TSMC separately confirmed a Reuters report saying it is considering fabs in Texas but offered no new information. We think TSMC can benefit from faster shipping and collaboration in Texas’ dense industry ecosystem. Any announcement is on top of $265 billion already committed.

  • TSMC’s unusually blunt “leave no food on the table” echoes our 2028 capex estimate of $98 billion, 53% higher than 2026. We expect TSMC to be more aggressive in expanding 2-nanometer and 1.4nm wafer processing capacity, benefiting equipment firms like Lasertec and Tokyo Electron.
  • Fourth-quarter revenue guidance is $7 billion above our prior forecast, which we attribute to faster ramp-up of 2nm and advanced packaging capacity. We adjust 2026 forecasts on the guidance but keep our long-term estimates intact until we see supply chain constraints loosen.

The bottom line: We leave our fair value estimates for wide-moat TSMC at TWD 3,440 ($534 per ADR) with no change in our long-term outlook. We think TSMC is undervalued as we see its fab plans can soothe concerns on US-based sourcing, which is a key selling point of Intel Foundry.

  • We have not modeled the purported Texas cluster as nothing has been agreed yet, but long-term upside is enormous. We estimate matching the full scale of Tesla’s Terafab would triple TSMC’s effective capacity.

Long view: TSMC will adopt high-NA extreme ultraviolet lithography in 2030, around the time we expect it to debut its 1nm process. The adoption is paired with other technological breakthroughs to make it financially feasible, which we think dispels concerns around Intel and Samsung leapfrogging.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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