Taiwan Semiconductor Manufacturing (TSM 0.75%) stock has jumped sharply in the past three months, clocking impressive gains of 37% during this period, and there is a good chance that the foundry giant will jump to new highs in July.
TSMC stock is currently trading at the higher end of its 52-week range following its recent surge. The company is expected to release its second-quarter results on July 17, and there is a good chance that it could hit new 52-week highs after it releases its results.
Let's look at the reasons why that may happen.
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TSMC's improving foundry market share points toward another solid quarter
TSMC is the world's largest semiconductor foundry, and the company is becoming more dominant in this market with each passing quarter. According to market research firm TrendForce, TSMC's share of the global foundry market increased to almost 68% in the first quarter of 2025. That's an improvement of six percentage points when compared to the year-ago period.
There is a good chance that TSMC's foundry market share gains continued in the year's Q2, as evident by the terrific increase in the company's monthly revenue figures. TSMC's April revenue shot up an impressive 48% year over year, while its May revenue was up by almost 40%. Consensus estimates are projecting TSMC's Q1 revenue to increase by 37% from the year-ago period.
The company's revenue growth in the first couple of months of the quarter suggests that it could end up exceeding analysts' expectations when it releases its results. That won't be surprising as TSMC management recently pointed out that the demand for the artificial intelligence (AI) chips that it manufactures for multiple chipmakers such as Nvidia, AMD, Broadcom, Marvell Technology, and others has been outpacing supply.
As a result, TSMC has been aggressively building more fabrication plants so that it can capitalize on the booming demand for AI chips. The company is on track to construct nine new production facilities in 2025. That's not surprising as it is witnessing a surge in orders for advanced chips from the likes of Nvidia and Apple, which are queueing up to tap TSMC's facilities to fabricate AI chips.
So, this combination of an increase in capacity and stronger demand for its chips could be enough for TSMC to exceed Wall Street's Q2 expectations when it releases its results this month. What's more, TSMC is reportedly increasing the prices of its current and next-generation process nodes. So there is a good chance that the company's margin profile could continue to improve going forward and lead to stronger growth in its earnings.
A big reason why customers can be expected to pay a premium for the chips fabricated by TSMC is because of the technology advantage it enjoys over rivals, which enables the company to produce chips that are not only more powerful but also power efficient. That's the reason why TSMC is forecasting an operating margin of 48% for Q2, which would be a big jump over the year-ago period's reading of 42.5%.
Not surprisingly, analysts are expecting TSMC's earnings to jump by 54% in the current quarter to $2.28 per share. However, stronger volume shipments thanks to the factors discussed above, as well as the price hikes, could pave the way for a stronger jump in TSMC's quarterly earnings.
Moreover, the persistently strong demand for AI chips, which is evident from the recent quarterly results posted by some of TSMC's customers that point toward an acceleration in their AI-related growth in the current quarter, is an indication that its outlook could also be solid. All this could pave the way for more upside in TSMC stock, which is why it would be a good idea to buy it before its upcoming quarterly report when we take into account its incredibly attractive valuation.
The simplest reason to buy this stock right now
When we consider the solid report that TSMC is on track to deliver in a few weeks, and importantly, its ability to sustain elevated growth levels over the long run, buying the stock right now is a no-brainer. After all, TSMC is trading at just 27 times sales, which is a discount to the tech-laden Nasdaq-100 index's price-to-earnings ratio of 32.
The forward earnings multiple of 24 is even more attractive, especially considering that its bottom-line growth rate is expected to accelerate in the future as well.
TSM EPS Estimates for Current Fiscal Year data by YCharts.
So, investors can consider buying this AI stock going into its quarterly report as stronger-than-expected results and outlook are likely to help TSMC jump to new highs.
