Taiwan Semiconductor Manufacturing (TSM +1.05%), popularly known as TSMC, has turned out to be a solid investment over the past five years. Shares of the foundry giant have jumped an impressive 182% during this period, easily outpacing the 83% gains clocked by the S&P 500 index.
However, the broader stock market sell-off has weighed on TSMC stock so far this year. The foundry specialist has lost 25% of its value in 2025 even though it has delivered a couple of solid quarterly results thanks to the outstanding demand for the chips it manufactures. But the drop in TSMC stock this year is a window of opportunity for investors looking to add a long-term winner to their portfolios.
That's because TSMC is one of the best ways to benefit from the secular growth of the semiconductor market. Let's look at the reasons why buying TSMC stock for the next five years could turn out to be a smart move.
NYSE: TSM
Key Data Points
The chip market is set for solid growth over the next five years
The global semiconductor industry generated $628 billion in revenue in 2024, clocking 19% growth from the previous year, as per the Semiconductor Industry Association. It is expected to grow by double digits in 2025 as well, driven by the growing demand for chips in various applications such as communications, artificial intelligence (AI), defense, transportation, medical devices, and others.
These growth drivers are expected to send the global semiconductor industry's revenue to $1 trillion in 2030, according to market research firm Yole Group. More optimistic estimates project the semiconductor market to hit almost $1.5 trillion in revenue by the end of the decade. These estimates bode well for TSMC as it is the world's biggest semiconductor foundry with a market share of 67%.
The company's chip fabrication plants are used by more than 500 customers for manufacturing close to 12,000 products. They serve multiple end markets ranging from automotive to consumer electronics to smartphones to high-performance computing, among others. It makes chips for top companies such as Apple, Nvidia, AMD, Qualcomm, Broadcom, Sony, Samsung, and MediaTek.
These customers are dominant players in their respective industries. Importantly, all of them have been lining up to manufacture chips using TSMC's advanced process nodes. Apple, for instance, reportedly plans to deploy chips manufactured on TSMC's 2-nanometer (nm) process node in its 2026 iPhones, while AMD, Intel, and Broadcom are also expected to adopt this process node to manufacture AI accelerators.
Meanwhile, Nvidia is expected to manufacture next-generation AI chips using the 2nm process node. TSMC's 2nm chips are expected to hit mass production in the second half of the year. The company is reportedly enhancing its 2nm manufacturing capacity, with production projected to reach 50,000 wafers per month by the end of 2025 before eventually jumping to 80,000 wafers a month.
What's more, TSMC expects to manufacture 30% of its 2nm chips in the U.S., which is why it is going to speed up the construction of its facilities in Arizona. It is worth noting that TSMC got 22% of its total revenue from selling 3nm chips in the first quarter of 2025, up from just 9% in the year-ago period. The revenue share of 5nm chips fell by a percentage point to 36% in Q1.
The stronger adoption of the 3nm chips can be explained by the 15% performance gains and 30% to 35% power efficiency gains they deliver over the 5nm process node while being smaller in size. The 2nm chips, meanwhile, are expected to deliver similar gains over the 3nm process node, which explains why TSMC is anticipating solid demand for this manufacturing process.
After all, major chipmakers and consumer electronics companies that TSMC serves are looking to reduce power consumption and the size of chips while achieving higher computing performance. This can be achieved by shrinking the size of the chips and packing more transistors into a smaller area. TSMC has been ahead of its rivals in shrinking the size of its chips, and that trend is expected to continue with 2nm.
That's because Samsung's power efficiency gains while moving from 3nm to 2nm are expected to be smaller than TSMC at 25%, which should ideally allow the latter to maintain its technology lead. As a result, don't be surprised to see TSMC gain a bigger share of the foundry market. The company gained 6 percentage points of market share in 2024, while Samsung's share slipped by 3 percentage points to just 11%.
The potential advantage of the 2nm process node could help TSMC widen that already impressive gap further. As a result, TSMC could corner a bigger share of the semiconductor foundry market by 2030, which is expected to generate almost $217 billion in revenue after five years.
However, the company's revenue opportunity doesn't end here -- it is targeting the lucrative advanced chip packaging market as well under its Foundry 2.0 strategy. The overall Foundry 2.0 market, which includes both chip manufacturing and packaging, is expected to hit $298 billion in revenue this year, according to IDC. The market research firm anticipates this market to grow at an annual rate of 10% for the next five years.
IDC expects TSMC's share of this market to increase to 37% in 2025. The discussion above suggests that it could end up cornering a bigger share of this lucrative market over the next five years, and that could translate into healthy stock market gains.
How much upside could TSMC deliver?
A 37% share of the Foundry 2.0 market this year would bring TSMC's 2025 revenue to around $110 billion (based on IDC's $298 billion revenue estimate). However, analysts have increased their growth expectations for the current year and are expecting its bottom-line growth to pick up.
TSM Revenue Estimates for Current Fiscal Year data by YCharts
The improved outlook could be attributed to the company's stronger position in the advanced chip manufacturing market, which is witnessing solid growth thanks to applications such as AI. If the Foundry 2.0 market indeed grows at 10% a year for the next five years (as per IDC's estimate), it could generate $480 billion in revenue at the end of the forecast period.
Assuming TSMC's Foundry 2.0 market share grows further and it manages to capture even 45% of this space after five years, its revenue could hit $216 billion. That would be double the revenue it is expected to generate this year. Multiplying the projected revenue after five years with the company's five-year average sales multiple of 9 points toward a market capitalization of $1.94 trillion.
That would be 2.5 times TSMC's current market cap, indicating that this semiconductor stock could continue delivering healthy gains over the next five years as well.
