THE WATCHLIST

This $1 trillion+ powerhouse has the deepest moat in tech, powering the AI Gold Rush for the world’s biggest companies. They are behind nearly every major tech breakthrough, from your iPhone to AI data centers. They’re not in the spotlight, but they build the chips that make everything possible.

Enjoy the breakdown…

Who is Taiwan Semiconductor Manufacturing Group?

Taiwan Semiconductor Manufacturing Company (Ticker TSM) is the biggest chipmaker in the world, but you rarely hear about them. They’re a Taiwanese company that doesn’t design chips, just builds them. That’s their whole thing. They manufacture semiconductors for the biggest names in tech; think Apple, Nvidia, AMD… and they’ve been doing it since they were founded in 1987 by Dr. Morris Chang.

They basically invented the "pure-play foundry" model, meaning they don’t compete with their customers. They just focus on making the most advanced chips on the planet. Without TSM, a lot of your favorite gadgets, apps, and platforms simply wouldn’t exist. They are currently the 9th most valuable company in the world with about a $1.5 trillion market cap.

What Does TSM Do?

TSM runs massive fabrication plants (called “fabs”) where they take other companies’ chip designs and make them real, meaning, physical, microscopic silicon with billions of transistors packed inside. They’re world leaders in advanced manufacturing, producing chips at bleeding-edge tech nodes like 3 nanometers. That means they’re behind the processors in your phone, your laptop, cloud servers, game consoles, AI systems, even your car. If it runs on advanced silicon, odds are high it came out of a TSM fab. So while everyone admires Nvidia and Apple, it’s important to remember who fabricates many of their chips.

💰️ How TSM Makes Money?

TSM pulls in revenue by making chips for different end markets. Here’s how 2024 broke down:

High-Performance Computing (HPC) – 51% ($45–46B): This is their biggest slice, powering data centers, AI, PCs, and servers. Nvidia’s AI GPUs? AMD’s processors? Apple’s Mac chips? All made by TSM. The demand for AI and cloud computing has pushed this segment to the top.

Smartphones – 35% ($32B): This was once the biggest category, but is still massive. Apple is the standout here. TSM makes the A-series chips for iPhones, which alone accounts for about 25% of TSM’s total revenue. They also manufacture chips for Android players like Qualcomm and MediaTek.

Internet of Things (IoT) – 6% ($5B): Chips for smartwatches, sensors, appliances, etc. Lower power, lower cost, huge variety. No single dominant customer, just a long list of smaller ones.

Automotive – 5% ($4–5B): Cars are getting smarter, and TSM is riding that wave. They supply chips for everything from driver-assist systems to EV power management. This category is growing fast.

Digital Consumer Electronics & Other – 3% ($3B): This includes smart TVs, gaming gadgets, set-top boxes, and more. It’s a smaller slice, but still relevant.

Customer concentration: It’s important to note that Apple alone is about a quarter of TSM’s revenue. Add the rest of the top 10, Nvidia, AMD, Qualcomm, MediaTek and you’re looking at 70–75% of their total income. That’s a lot of reliance on a few big names, but TSM also works with hundreds of companies across the industry. They have a wide base, even if a few customers make up the bulk of the dollars.

Does TSM have a Wide Durable Moat?

Most definitely! TSM has one of the strongest, most defensible moats in the business, and in the AI era, it’s only getting deeper. AI is accelerating demand for cutting-edge chips, and TSM is the only foundry consistently delivering at that level. As the models grow and become more power-hungry, top players like Nvidia and AMD keep leaning harder on TSM. That demand is fueling more investment, which just keeps widening the moat.

Leading-edge technology: TSM is consistently first (or tied for first) to bring new transistor nodes to market; 7nm, 5nm, 3nm, soon 2nm, followed by 1.4nm. Smaller nanometers mean more transistors packed into the same space, which equals faster, more power-efficient chips. When you hear 7nm, 5nm, 3nm, etc., that means newer, smaller, more advanced tech. Their execution, yield, and reliability at these cutting-edge nodes are unmatched. Samsung is the only real competitor here, and even they’re not close. That tech lead is hard to catch up to, and it’s the core of TSM’s moat.

Scale and cost advantage: No one matches TSM’s scale. That scale brings down costs, boosts yields, and lets them reinvest tens of billions every year into R&D and new fabs. More volume, more efficiency, more investment, better tech. Everyone else is just trying to keep up.

Capital barriers: Starting a leading-edge fab costs $10–20b+ and years just to get to production-ready yields. The capital, time, and expertise needed make this game nearly impossible to enter. Even Intel, with all its resources, is still years behind TSM’s process roadmap.

Customer trust and switching costs: TSM doesn’t design chips, they’re a pure-play foundry. That gets them massive trust from customers like Apple, Nvidia, and AMD. Their chip designs are integrated with TSM’s process tech, so switching foundries would be risky, expensive, and slow. Once you’re with TSM, you’re staying.

Institutional knowledge and IP: Decades (since 1987) of refinements, proprietary tools, and engineering depth give TSM an edge that money can’t buy. You could buy the same machines, but without the know-how, you’re not getting TSM’s yields. That experience is a real moat.

➡️ One of TSM’s secret weapons? Their Open Innovation Platform (OIP).

It’s almost like an exclusive R&D club where TSM teams up with chip designers (think Apple, AMD) well before anything goes into production. They’re not just taking chip orders, they’re co-building custom tech together: design flows, packaging, chiplets, the whole deal.

TSM also brings 40+ software toolmakers and 100+ IP providers into the mix. Everyone's working on the same wavelength, early and often.

What’s the outcome? Chips hit the market faster, it’s harder for customers to switch to a rival, and TSM stays locked into the heart of the industry.

It’s not just manufacturing, it’s a long-term strategic glue.

Core Analysis

I provided USD equivalents where relevant, but the original numbers come from TSM's filings in NT$ (New Taiwan Dollar)

ADR - If investing through the NYSE under ticker TSM, you’re buying ADR - American depository receipts. Each ADR represents 5 regular shares, so the EPS and dividends per ADR are 5× those of the local shares (and in USD, not NT$)

Market Opportunity

TSM’s market opportunity is huge. Its TAM includes the $680+ billion global semiconductor industry, with a serviceable market of $150 billion in the foundry segment. TSM currently captures about 60–70% of global foundry revenue, translating to $90 billion annually, making them the clear market leader.

Market Position

TSM dominates the global chip foundry game, owning over 50% of the market and more than 90% of the world’s most advanced chip production (7nm and below). It’s the go-to for big names like Apple, NVIDIA, and AMD. Samsung trails far behind, and Intel’s still trying to catch up. No one else comes close to TSM’s mix of tech, scale, and trust.

Revenue Growth

TSM’s revenue is back on an uptrend. After sales dipped in 2023 (–4.5% in NTD, –8.7% in USD), it jumped 30% in 2024 due to demand for AI and advanced-node chips. The momentum keeps rolling in 2025. This volatility reflects the cyclical semiconductor market.

2022: $75.9b (USD)
2023: $69.3b (–8.7%)
2024: $90.1b (+30.0%)
TTM (through Q3’25): $115.6b

EPS Growth

Earnings per share (EPS) movement mirrored revenue. In 2024, it jumped 31.8%. This jump reflects higher net income and stable share count. Through Q3’25, EPS continues to grow (Q3’25 ADR EPS $2.92), as the 2024 recovery carries into 2025.

2022: $6.90 ADR USD (diluted)
2023: $5.35 (–22.5%)
2024: $7.05 (+31.8%)

Gross Margins

The company achieved a 59.6% gross margin in 2022 (record high) which fell to 54.4% in 2023 due to lower utilization and ramp costs for 3nm. In 2024 margins recovered to 56.1% when 3nm scale improved. 2025 margins are looking even stronger with Q3’25 at 59.5%. This shows strong profitability on new nodes.

Pricing Power

TSM has significant pricing power on its leading-edge processes. Wafer (a thin, circular slice of semiconductor material—usually silicon—used as the base for the chips) prices recently jumped 20–24% for 3nm nodes (e.g. Qualcomm saw +16%, MediaTek +24%). Next-generation nodes carry even larger hikes: industry sources warn 2nm wafer prices could be 50% higher than 3nm. These price increases prove TSM’s technological lead and limited competition with cutting-edge chips, allowing the company to pass on rising R&D and capex costs. In short, TSM’s advanced-node pricing power remains strong, underpinning its high margins.

N3P vs N3E wafer price: +20–24%
N2 vs N3 wafer price: +50% (planned)
Margin impact: Supported 2024 gross margin recovery to 56.1%

Cash Flow/FCF Margins

TSM has very strong cash flow. In 2022, operating cash flow far exceeded capex. 2023 FCF fell as revenue dipped. In 2024, FCF surged due to higher operating income and disciplined capex. Overall FCF margins of 13–30% between 2022–24. TSM’s quarterlies show FCF rising again in 2025.

2022 FCF: $17.6b (USD)
2023 FCF: $9.7b
2024 FCF: $28.6b

Long-Term Debt and Cash

TSM has a conservative balance sheet with large cash reserves and moderate debt. Current cash is at $91.9b. Long-term debt is relatively low and stable. Net cash (cash minus debt) remains very high. TTM 2025 shows cash continuing to build with no need for new debt, reflecting strong cash flow and steady dividend payouts.

End-2022: Cash $48.6b; Debt $26.1b
End-2023: Cash $52.5b; Debt $28.6b
End-2024: Cash $75.4b; Debt $29.8b
Current: $91.9b; Debt $30.8b

Institutional Ownership:

TSM has about 17% institutional ownership.

The NYSE-listed ADR (ticker: TSM) represents a fraction of total outstanding shares (20%). The majority of its shares are held in Taiwan, where institutional U.S. ownership is more limited due to regulatory, currency, and geopolitical constraints.

Institutional investors often prefer direct access to large float and liquidity. TSM’s ADRs have a limited float compared to megacaps like Apple or Microsoft, which trade solely on U.S. exchanges and have deep, liquid markets.

Some institutions stay away from TSM due to China–Taiwan tensions, fearing supply chain or operational disruptions.

Why TSM Looks Good 📈📈📈

• AI + 5G tailwinds – TSM owns the cutting edge of chipmaking for AI, cloud, and 5G. It’s ramping up 3nm production and already working on 2nm.

• Undisputed leader – They dominate market share in the global foundry market and capture about 75% of the growth in advanced logic chips.

• Strong numbers – 2024 was a record year (+30% revenue, +36% net income), and 2025 is off to a hot start with Q3 revenue up 40.8% year-over-year.

• Big war chest – Over $90b in cash and low debt means TSM can build new fabs (Arizona, Japan, Germany), invest heavily, and still return capital to shareholders.

• Customer loyalty – Apple, Nvidia, and AMD, among others, are locked into TSM’s ecosystem. Its R&D lead and reliable delivery help keep that moat strong.

Why TSM Can Be Concerning 📉📉📉

• Pricey stock – It’s trading around 29x earnings. DCF models with conservative assumptions say it might be overvalued.

• Cyclical business – Chips can be cyclical. After a strong 2022, TSM’s revenue dipped in 2023. Smartphone and PC demand are still shaky.

• Geopolitical wildcards – TSM sits between US-China tensions. Export controls or potential conflict could disrupt supply chains or push customers elsewhere.

• Rising competition + spend – Staying ahead isn’t cheap. Samsung and Intel are doing their best to trim their lead. If TSM’s huge capex doesn’t pay off, or if the industry overbuilds, margins might take a hit.

• Currency + cost pressure – A weaker NT dollar inflates USD results. Rising energy and materials costs, or a shift in forex trends, could trim into profits.

Scenario Analysis

Bull Case: AI demand continues, new fabs run full tilt, and TSM keeps its edge at 3nm/2nm. If revenue keeps growing at +20% a year, they could hit $250–300b by 2030 ($115b now). EPS might climb to $10–15 with solid margins and higher chip prices. TSM wins the AI/5G race and dominates next-gen silicon.

Base Case: Consumer tech rebounds, AI keeps growing, and TSM averages 10% revenue growth. Revenue could reach $180–200b by 2030, with EPS around $8–10. Margins stay strong (mid-50%). TSM adds capacity slow and steadily and stays a cash machine.

Bear Case: Demand dies or competition grows faster. Growth slows to 0–5% and revenue barely grows past 2024 levels ($120–140b by 2030). Margins shrink, EPS stalls around $5–6. Capex stays high and FCF takes a hit. If macro or tech trends go down, TSM’s story can go from growth to just cash returns.

Zoom Out - 3+ Year Outlook

Over the next few years, TSM will likely stay on top of the chip game. They’re basically the engine behind AI and high-performance computing, making almost all the advanced chips for the biggest players. They’re moving fast, 2nm chips in 2025, aiming for 1.4nm by 2027. No one else is close. And as demand for AI chips, smarter cars, and smarter phones grows, TSM is in the perfect position to benefit, having over 90% of the most advanced chipmaking market. They’re also expanding beyond Taiwan, building new fabs in the U.S., Japan, and Germany. It’ll cost more, but it helps spread out risk. Financially, they’re solid, over $90b in cash, strong profits, and plenty of room to invest.

The risks? Tension between China and Taiwan, depending too much on a few customers, or global competition warming up (Samsung and Intel).

Bottom line: Unless something big shakes things up, TSM will stay a key player in the AI era; dominant tech, strong finances, and a growth story with real legs.