TSMC's AI-Driven Surge Faces Valuation and Geopolitical Headwinds Despite Bullish 2026 Outlook

What happened

A Seeking Alpha article projects TSMC's 2026 growth to surpass 2025, citing sustained AI/HPC demand that fueled a Q3 2025 revenue beat of +40.8% YoY and an 11.2% EPS beat, with margins and ROE rising as HPC reached 57% of sales. The author highlights planned capex increases to $40–42B in 2025 and a path to ~$50B in 2026/27 to expand advanced-node capacity, aiming to bolster pricing power against Intel and Samsung. However, DeepValue's report tempers this optimism by noting the stock's 46% 12-month gain has compressed the margin of safety, with valuation at ~25.5x P/E and persistent risks like Taiwan concentration and overseas fab execution. While near-term momentum appears robust, the long-term thesis depends on TSMC navigating geopolitical shocks and potential overcapacity without eroding its premium returns. Thus, the narrative balances bullish growth signals against elevated risk factors that argue for cautious positioning.

Implication

The article reinforces TSMC's operational strength and AI tailwinds, supporting near-term revenue and EPS growth, but the stock's premium valuation after a sharp rally leaves little room for error. DeepValue's analysis highlights severe geopolitical risks, such as cross-Strait tensions and export controls, which could abruptly impair operations regardless of fundamentals. Additionally, the massive capex plan, while expanding scale, introduces execution risk in overseas fabs that may dilute returns if subsidies fall short or costs overrun. Monitoring technology milestones like 2nm ramp and customer traction is critical, as any slips could trigger thesis invalidation and share-price declines. Therefore, TSMC remains a high-quality core holding, but investors should size positions conservatively to account for asymmetric downside risks rather than chase the bullish narrative.

Thesis delta

The new article confirms TSMC's near-term earnings momentum and capex-driven expansion, aligning with the growth aspect of the DeepValue thesis. However, it does not mitigate the fundamental risks of geopolitical exposure, overseas execution challenges, and valuation concerns, keeping the overall stance as a POTENTIAL BUY with caution rather than shifting to a stronger conviction.