I.Executive Summary
Taiwan Semiconductor Manufacturing Company (TSMC) makes most of the world's leading-edge chips for other companies, NVIDIA among them (NVIDIA's 10-K names TSMC as a principal foundry). In the second quarter of 2026 revenue was NT$1,270 billion (US$40.2 billion), up 36%, and net income rose 77% to NT$707 billion, a 55.6% net margin. Seventy-seven percent of wafer revenue came from 7-nanometre and more advanced processes. Management guides third-quarter revenue to US$44.6–45.8 billion and full-year 2026 growth of slightly above 40% in U.S. dollars, and has raised 2026 capital spending to US$60–64 billion.
U.S. investors usually own TSMC through its New York-listed American Depositary Shares (ADRs). One ADR represents five ordinary shares listed in Taipei. At $456.19 per ADR, the stock trades at 26.9× 2026 consensus EPS of $16.93 per ADR and 20.8× 2027. Those multiples include a premium of roughly 17% that the ADR currently commands over the Taipei shares (Section III).
TSMC is the industry's indispensable manufacturer, with net cash, rising margins and pricing power. But it is still a cyclical, capital-heavy business whose earnings rose 59% this year. At today's ADR price, holding earnings at 2027 consensus produces a return well below our 10% hurdle.
Our illustrative five-year P/E projection holds today's 26.9× P/E on 2026 consensus EPS per ADR and takes the 2026–2027 consensus as Years 1–2. Because the business is cyclical and earnings are at a record, the base case then holds EPS flat at the 2027 consensus rather than using analysts' 38%-a-year long-term figure; the bear and bull cases let EPS slip or grow 3% a year, with exit multiples 15% lower or higher. That gives Year-5 prices of $458 (bear), $591 (base) and $743 (bull), against today's $456.19: about +5.3% a year in the base case (+0.1% to +10.2%). Discounted at 10% a year, the base case is worth $367 today, −20% versus the price. All per-ADR figures; 1 ADR = 5 ordinary shares. *All values are Pathos's illustrative estimates, not price targets or recommendations.
II.Business Overview
What it does. TSMC is a pure-play foundry: it manufactures chips designed by others and does not sell chips under its own name. In 2025 it served 534 customers and made 12,682 products. In Q2 2026 the 3-nm node provided 30% of wafer revenue, 5-nm 33%, 7-nm 11% and the new 2-nm node 3%.
Why it earns so much. Leading-edge manufacturing requires tens of billions of dollars a year in capital and years of process learning. TSMC is widely regarded as the leader in producing the most advanced chips at high volume and with reliable yields, which gives it pricing power. Gross margin has risen from 51.6% in 2021 to 67.7% in Q2 2026.
Where it is going. AI accelerators (NVIDIA GPUs, Broadcom custom chips and others) and advanced packaging are the fastest-growing demand. TSMC is also building fabs in Arizona, Japan and Germany, which cost more to run than its Taiwan fabs. 2026 capex of US$60–64 billion compares with NT$1,272 billion (about US$41 billion, Pathos conversion) in 2025.
III.ADR Price & Valuation Multiples
ADR price as of NYSE close, 30 Sep 2026 · Fundamentals: 2025 Form 20-F and Q2 2026 results (Form 6-K)| Metric | Value | Basis |
|---|---|---|
| ADR price | $456.19 | Close, 30 Sep 2026 (1 ADR = 5 ordinary shares) |
| 52-week range (ADR) | $266.82 – $479.00 | Finviz, 30 Sep 2026 |
| Market capitalisation, ADR basis | $2.37T | 25,930M ordinary shares ÷ 5 × $456.19 (Pathos) |
| Market capitalisation, Taipei basis | $2.02T | StockAnalysis |
| Implied ADR premium | ≈17% | Pathos calculation; Taipei quote not separately verified |
| P/E, trailing 12 months (ADR) | 33.9× | TTM EPS US$13.44 per ADR (StockAnalysis); 29.0× on Taipei basis |
| P/E, 2026 consensus (ADR) | 26.9× | US$16.93 per ADR, 13 analysts (Yahoo Finance) |
| P/E, 2027 consensus (ADR) | 20.8× | US$21.93 per ADR, 13 analysts |
| EV / EBITDA (TTM, ADR basis) | 23.0× | Net cash US$77.0B; TTM EBITDA US$99.6B |
| Price / sales (TTM, ADR basis) | 17.0× | TTM revenue US$139.6B |
| Dividend | US$3.22 per ADR a year (0.71%) | StockAnalysis; next ex-date 10 Dec 2026 |
The ADR premium. Because foreign ownership of Taipei-listed shares and conversion into ADRs are constrained, the ADR often trades above five times the Taipei share price. Today the gap appears to be about 17%: the ADR price implies a market value of $2.37 trillion against $2.02 trillion on Taipei pricing. An ADR buyer is paying that premium, and on Taipei pricing the 2026 P/E would be about 23× rather than 26.9× (Pathos calculation). The projection assumes the premium persists. If it narrowed, ADR returns would be lower than the business alone would suggest. For context only, the mean analyst price target compiled by StockAnalysis is $552.26 per ADR (21 analysts).
IV.Five-Year Financial Record
Source: TSMC annual reports (Form 20-F) and quarterly results, as compiled by StockAnalysis. GM = gross margin.
| NT$ billions, calendar year | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue | 1,587.4 | 2,263.9 | 2,161.7 | 2,894.3 | 3,809.1 |
| Growth | 18.5% | 42.6% | −4.5% | 33.9% | 31.6% |
| Gross profit | 819.5 | 1,348.4 | 1,175.1 | 1,624.4 | 2,281.3 |
| Gross margin | 51.6% | 59.6% | 54.4% | 56.1% | 59.9% |
| Operating income | 650.3 | 1,122.1 | 921.5 | 1,323.2 | 1,936.9 |
| Operating margin | 41.0% | 49.6% | 42.6% | 45.7% | 50.8% |
| Net income (to owners) | 592.4 | 992.9 | 851.7 | 1,158.4 | 1,697.6 |
| EPS per ordinary share (NT$) | 22.84 | 38.29 | 32.85 | 44.67 | 65.47 |
| EPS per ADR (NT$, ×5) | 114.2 | 191.4 | 164.2 | 223.4 | 327.4 |
| Operating cash flow | 1,112.2 | 1,610.6 | 1,242.0 | 1,826.2 | 2,275.0 |
| Capital expenditure | (839.2) | (1,082.7) | (949.8) | (956.0) | (1,272.4) |
| Free cash flow | 273.0 | 527.9 | 292.2 | 870.2 | 1,002.6 |
| Dividends declared per share (NT$) | 11 | 11 | 13 | 17 | 22 |
TSMC grew revenue 2.4-fold in four years, and margins widened as the leading-edge mix rose. 2023 is the reminder: after a pandemic-era boom, an inventory correction cut revenue 4.5% and EPS 14%, even at the industry's strongest company. Free cash flow is lumpy because capital spending moves in large steps (2021–2022 and again in 2025–2026).
Bars: quarterly revenue and net income, NT$ billions (TIFRS, as first reported in TSMC’s quarterly earnings releases on Form 6-K). Line: trailing P/E = NYSE ADR closing price at quarter-end ÷ the sum of the last four quarters’ diluted EPS per ADR in US dollars, as stated in each release (1 ADR = 5 ordinary shares). Sources: TSMC Form 6-K releases and financial statements via SEC EDGAR; Yahoo Finance price history. Hover over a quarter for exact values.
Total tangible book value, NT$ billions = equity attributable to shareholders of the parent minus intangible assets (TSMC’s intangible-assets line includes goodwill), at quarter-end. Balance sheets from TSMC’s quarterly TIFRS consolidated financial statements filed on Form 6-K, which can differ slightly from the IFRS figures in the annual 20-F. Hover over a quarter for the components and the value per ordinary share (weighted-average shares from the earnings release; one ADR represents five shares).
V.Cash Conversion & Earnings Quality
TSMC's earnings are high quality: operating cash flow exceeded net income in every year shown, because depreciation on its enormous fab base (a non-cash charge) is larger than any working-capital swings. The constraint is capital spending, which absorbed 52–76% of operating cash flow over 2021–2025 (Pathos calculation).
- Trailing twelve months to June 2026: operating cash flow NT$2,635B, capex NT$1,491B, free cash flow NT$1,144B (US$35.9B per StockAnalysis), about half of net income of NT$2,217B.
- Capex is rising again. The 2026 budget of US$60–64B is roughly 50% above 2025. Free cash flow conversion will stay well below 100% of earnings while AI capacity is built.
- IFRS, not GAAP. TSMC reports under IFRS and has no meaningful "adjusted" EPS, so consensus and reported EPS are on the same basis. That is cleaner than most U.S. peers.
VI.Balance Sheet Strength
| NT$ billions | Dec 2023 | Dec 2024 | Dec 2025 | Jun 2026 |
|---|---|---|---|---|
| Cash and short-term investments | 1,686.9 | 2,421.8 | 3,068.5 | 3,518.0 |
| Total debt | 986.4 | 1,050.1 | 1,068.4 | 1,068.6 |
| Net cash | 700.5 | 1,371.7 | 2,000.1 | 2,449.5 |
The balance sheet is a fortress. Net cash has more than tripled since 2023 even as capex rose, and debt (mostly long-dated corporate bonds) has stayed roughly flat at about NT$1.07 trillion. Shareholders' equity was NT$4.24 trillion at the end of 2024 (SEC data), almost entirely tangible.
VII.Capital Allocation & Dilution
- Dividends. TSMC pays quarterly dividends, and the annual total per share rose from NT$11 (2021) to NT$22 (2025), about a third of 2025 EPS. The ADR yield is 0.71%.
- No buybacks, no dilution. The share count has been essentially unchanged at about 25.93 billion ordinary shares for a decade (SEC data). Per-share growth equals profit growth.
- Reinvestment first. Most cash goes back into fabs. Overseas fabs (Arizona, Japan, Germany) dilute margins in the short term; management has guided gross margin to 65–67% for Q3 2026, below Q2's 67.7%.
VIII.Five-Year P/E Projection (Illustrative)
Method. Today's price divided by consensus EPS for 2026 (calendar year, half complete) gives the current P/E of 26.9×. We take 2026 and 2027 consensus EPS as Years 1 and 2 in every scenario, grow EPS at a stated annual rate in Years 3–5, and apply an exit P/E to Year-5 (2030) EPS. The base case holds today's P/E; the bear and bull cases use multiples 15% lower and higher and growth 3 points lower and higher. We compare the resulting Year-5 price with today's price as an annualized return, and discount it at a 10% required return to a present value. With the multiple held, the base-case return is simply EPS growth from Year 1 to Year 5.
| Input | Value | Type and basis |
|---|---|---|
| Share price | $456.19 | Source: NYSE close, 30 Sep 2026 |
| Year 0: FY2025 EPS per ADR | $10.65 per ADR IFRS, as reported | Source: Yahoo Finance; NT$65.47 per share × 5, converted to US$. TSMC reports no non-GAAP EPS |
| P/E on 2025 EPS | 42.8× | Calculation: price ÷ FY2025 EPS. Shown for reference, not applied (see below) |
| Year 1: FY2026 consensus EPS per ADR | $16.93 | Source: Yahoo Finance, 13 analysts (range $15.23–$17.80), 30 Sep 2026 |
| Year 2: FY2027 consensus EPS per ADR | $21.93 | Source: Yahoo Finance, 13 analysts (range $19.58–$24.62); +29.5% on Year 1 |
| Current P/E (applied) | 26.9× | Calculation: price ÷ Year-1 consensus EPS (the fiscal year already under way) |
| Analysts' 5-year EPS growth | 38.0% a year | Source: Finviz "EPS next 5Y", 30 Sep 2026 |
| EPS growth, past 5 years | 25.7% a year | Source: Finviz "EPS past 5Y" (per ADR, US$). Shown for reference |
| EPS growth, Years 3–5 | Bear −3% · Base 0% · Bull +3% | Assumption. Cyclicality cap (see note): base holds EPS at the 2027 consensus; bear and bull ±3 points |
| Exit P/E on Year-5 EPS | Bear 22.9× · Base 26.9× · Bull 31.0× | Assumption: current P/E −15% / held / +15% |
| Required return (present value) | 10% a year | Assumption |
Why today's forward P/E, not the trailing one. 2025 EPS ($10.65 per ADR) predates this year's step-up: the first two quarters of 2026 alone produced $7.80 per ADR ($3.49 + $4.31). The trailing P/E of 42.8× would imply a base Year-5 price of about $939, which we do not use. We hold the 26.9× the ADR trades at on 2026 consensus. Because that multiple includes the ADR premium of about 17% (Section III), the projection assumes the premium persists.
Year-by-year EPS
| US$ per ADR | Y0 FY2025A | Y1 FY2026E | Y2 FY2027E | Y3 FY2028E | Y4 FY2029E | Y5 FY2030E |
|---|---|---|---|---|---|---|
| Bear EPS | $10.65 | $16.93 | $21.93 | $21.27 | $20.63 | $20.01 |
| Base EPS | $10.65 | $16.93 | $21.93 | $21.93 | $21.93 | $21.93 |
| Bull EPS | $10.65 | $16.93 | $21.93 | $22.59 | $23.27 | $23.96 |
| Growth, Years 1–2 (consensus) | +59% | +30% | ||||
| Growth, Years 3–5 | Bear −3% · Base 0% · Bull +3% | |||||
Year-5 price and implied return
| US$ | Bear | Base | Bull |
|---|---|---|---|
| EPS growth, Years 3–5 | −3% | 0% | +3% |
| Year-5 EPS (FY2030) | $20.01 | $21.93 | $23.96 |
| Exit P/E | 22.9× | 26.9× | 31.0× |
| Year-5 price | $458 | $591 | $743 |
| vs. today's price of $456.19 | +0% | +30% | +63% |
| Implied annual return (5-yr CAGR) | +0.1% | +5.3% | +10.2% |
| Present value at 10% a year | $285 | $367 | $461 |
| Present value vs. today's price | −38% | −20% | +1% |
IX.Return vs. Today's Price
Pathos illustrative Year-5 (2030) price range, with each scenario's implied annual return. Red line: today's price. Dashed green line: the base-case Year-5 price discounted at 10% a year.
At $456.19 the base case implies about +5.3% a year over five years, with +0.1% in the bear case and +10.2% in the bull case, before a dividend yield of about 0.71%. Discounted at a 10% required return, the base-case Year-5 price is worth $367 today, −20% versus the price. Put the other way: holding today's P/E, a 10% annual return needs Year-5 EPS of about $27.27, which means EPS growth of about 7.5% a year in Years 3–5 after the consensus years. Of our four new semiconductor-related notes, TSM is the only one where the capped base case falls clearly short of 10%. The main reason is the ADR premium: the same earnings bought through the Taipei shares would cost roughly 17% less.
X.Superinvestor Holders (Dataroma)
Which of the portfolio managers that Dataroma tracks own TSM, according to their latest 13F filings? The figures below come only from Dataroma’s TSM ownership page and activity page.
Source: Dataroma · retrieved 30 Sep 2026 · 13F period Q2 2026 (holdings at 30 Jun 2026)The table shows 5 of the 24 Dataroma-tracked holders: those with more than 5% of their portfolio in TSM, sorted by the US$ value of the holding, largest first.
| Superinvestor | % of portfolio | Shares | Value (US$m) | Recent activity | 13F period |
|---|---|---|---|---|---|
| Chase Coleman - Tiger Global Management | 9.72% | 4,881,008 | 2,331.0 | Reduce 12.29% | Q2 2026 |
| David Tepper - Appaloosa Management | 10.55% | 1,650,000 | 788.0 | Add 24.29% | Q2 2026 |
| Ruane Cunniff LP | 8.71% | 1,172,725 | 560.1 | Reduce 2.95% | Q2 2026 |
| William Von Mueffling - Cantillon Capital Management | 8.24% | 114,820 | 54.8 | Reduce 95.40% | Q2 2026 |
| David Rolfe - Wedgewood Partners | 10.40% | 105,499 | 50.4 | Reduce 18.44% | Q2 2026 |
Dataroma shows 24 tracked superinvestors with a position at 30 Jun 2026. The largest weight belongs to David Tepper - Appaloosa Management, at 10.55% of the manager’s reported portfolio. Dataroma also shows full exits in Q2 2026: Duan Yongping - H&H International Investment (Sell 100%).
XI.Key Risks for Value Investors
Geopolitics
Most of TSMC's leading-edge capacity is in Taiwan. A blockade, conflict or severe sanctions would be catastrophic for the shares, and this risk cannot be diversified away within the company.
Semiconductor cyclicality
EPS fell 14% in 2023. Current earnings reflect an AI-driven boom with 2026 EPS expected up 59%. We cap growth after 2027 for this reason (Section VIII).
AI and customer concentration
A large share of growth comes from a small number of AI chip designers. A pause in hyperscaler spending would hit TSMC's most profitable nodes first.
ADR premium and currency
ADR holders pay a premium of about 17% over the Taipei shares, which could narrow. U.S.-dollar EPS also depends on the New Taiwan dollar; a stronger NT$ cuts gross margin and converted earnings.
Overseas expansion costs
Fabs in the U.S., Japan and Germany carry higher costs and are being built under political pressure. Margins could settle lower than today's 60%-plus operating level.
Capital intensity
Capex of US$60–64B in 2026 must earn a return through the next downturn. Overbuilding is the classic way foundry profits collapse.
XII.Advice to Management
Pathos's long-term owner principles judge management by the per-share value it builds over many years, not by quarterly results. Applied to TSMC's figures in this note, we would offer the following recommendations.
Tie capex to customer commitments and report returns
Capex is budgeted at US$60–64 billion for 2026, roughly 50% above 2025, and absorbed 52–76% of operating cash flow over 2021–2025. Foundry capacity is long-lived and the industry is cyclical. We would continue to require customer commitments for major expansions and publish the expected return on incremental capital, especially for advanced packaging.
Price overseas fabs to their full cost
Fabs in Arizona, Japan and Germany cost more to run, and management has guided gross margin to 65–67% for Q3 2026, below Q2's 67.7%. Where governments or customers want local capacity, they should share its cost. We would disclose the margin and return gap for overseas fabs and price that capacity to earn the company's normal return.
Set a cash target and return the surplus
Net cash was NT$2.45 trillion (about US$77 billion) at June 2026 and has more than tripled since 2023, while the dividend is about a third of earnings. Cash beyond what the business needs for capex and a severe downturn earns less for owners than it could in their hands. We would publish a target cash range and distribute the excess, through dividends or, when the shares trade below a conservative estimate of value, repurchases.
Protect the clean reporting and stable share count
TSMC reports under IFRS with no meaningful adjusted EPS, and its share count has been essentially unchanged at about 25.93 billion for a decade. These are uncommon strengths that keep per-share growth equal to profit growth. We would keep both, and avoid any move toward stock-based pay that dilutes owners or toward adjusted earnings measures.
Plan for the cycle at record earnings
Earnings rose 59% this year and the gross margin is near a record. Semiconductor demand has always been cyclical, and AI demand will be no exception. We would size capacity so that a downturn in AI orders reduces profits rather than leaving costly idle fabs, and explain those planning assumptions to owners.
Opinion, not advice. These recommendations are Pathos's opinion, based on long-term owner principles and the figures in this note; they are not investment advice.
XIII.Conclusion
TSMC is arguably the highest-quality business in the semiconductor industry: net cash of US$77 billion, 60% operating margins and no real competitor at the leading edge. The problem for a value investor today is price, not quality. The ADR's forward P/E of 26.9× includes a premium of about 17% over Taipei, and consensus already assumes earnings rise another 30% in 2027 after 59% this year.
Pathos view (illustrative). Holding today's 26.9× ADR multiple and EPS flat after 2027, the ADR offers about +5.3% a year in the base case (Year-5 range $458–$743), and the base case is worth about $367 today at 10%, −20% versus the price. The business is excellent; the ADR price, including its premium over Taipei, is the obstacle. We would revisit if (a) the ADR premium narrowed, (b) the price fell toward the base-case present value, or (c) TSMC showed that AI demand can sustain earnings growth of about 7.5% a year beyond 2027, the rate our hurdle requires. This is not a recommendation to buy, sell or hold.
XIV.Sources & Notes
As-of dates. ADR price, market capitalisation and price-based multiples use the NYSE close of $456.19 on 30 September 2026. Consensus (per ADR, in US$), the 52-week range and analysts' long-term growth estimate were retrieved on 30 September 2026. Annual figures are from TSMC's Forms 20-F (IFRS, NT$). The latest quarter is from the 16 July 2026 results (Form 6-K). Ratios, conversions and the ADR premium are Pathos calculations. Q3 2026 results are due 15 October 2026.
- Taiwan Semiconductor Manufacturing Co., Annual report on Form 20-F for 2025 (filed 16 Apr 2026), and earlier years via SEC XBRL company facts: financial statements, ADR ratio, share count, customers and products.
- TSMC Form 6-K, 16 Jul 2026: second quarter 2026 results and management report (revenue, margins, EPS per share and per ADR, wafer mix by node, Q3 guidance); 2026 capex and revenue-growth outlook from the accompanying conference call.
- Yahoo Finance, TSM analysis (retrieved 30 Sep 2026): 2026–2027 consensus EPS per ADR in US$, ranges, analyst counts; 2025 EPS per ADR.
- Finviz, TSM (retrieved 30 Sep 2026): analysts' five-year EPS growth estimate, 52-week range.
- StockAnalysis, TSM statistics and financials (retrieved 30 Sep 2026): close, market capitalisation (Taipei basis), trailing ratios, TTM figures in US$, NT$ financial history for 2025 and TTM, dividends, mean price target.
- TSMC quarterly earnings releases (Form 6-K, Exhibit 99.1), Q4 2020–Q2 2026, via SEC EDGAR (e.g. 2Q26 release, 16 Jul 2026): quarterly revenue, net income, diluted EPS per ADR (US$) and weighted-average shares; and TSMC quarterly TIFRS consolidated financial statements (Form 6-K), Q3 2021–Q2 2026 (e.g. Q2 2026 report, filed 14 Aug 2026): equity attributable to shareholders of the parent and intangible assets. Used for the quarterly charts in Section IV.
- Yahoo Finance, TSM daily price history (retrieved 30 Sep 2026): quarter-end ADR closing prices for the trailing P/E line.
- Dataroma, TSM superinvestor ownership page and activity page (retrieved 30 Sep 2026): ownership count, rank, % of all portfolios, hold price, holders, % of portfolio, shares, value and recent activity for 13F period Q2 2026 (holdings at 30 Jun 2026). 13F data are filed up to 45 days after quarter-end and cover long US-listed positions only.
Not verified or not used: the Taipei closing price of the ordinary shares on 30 September 2026 (the ADR premium is inferred from StockAnalysis's market capitalisation); customer revenue shares; the 2025 equity figure (the 2025 Form 20-F was not tagged for main balance-sheet items in SEC XBRL data).