Is Taiwan Semiconductor Manufacturing (TSM) the Most Profitable Tech Stock to Buy Now?

Taiwan Semiconductor Manufacturing (TSM), the world's largest contract chipmaker, has been a darling of the tech industry, powering the growth of major tech companies like Nvidia, AMD, and Qualcomm. With a market capitalization exceeding $1 trillion, TSM's stock has seen significant growth and investor interest. But is TSM the most profitable tech stock to buy now? Let's delve into the company's financial performance, valuation metrics, and growth prospects to find out.



Financial Performance and Valuation Metrics

TSM's revenue growth has been consistently higher than its peers. In 2024, TSM's revenue grew by 33.9% compared to the industry average of 15.8%. This trend has continued into 2025, with TSM's revenue expected to grow by 29.9% compared to the industry average of 18.8%. TSM's profit margin of 40.5% in 2024 was higher than the industry average of 32.2%, indicating that TSM is more efficient in converting revenue into profits compared to its peers.

TSM's price-to-earnings (PE) ratio of 23.4x is lower than the industry average of 32.2x, suggesting that TSM is relatively undervalued compared to its peers in the semiconductor industry. TSM's enterprise value/revenue (EV/Revenue) ratio of 9x is also lower than the industry average of 13.1x, further indicating that TSM's valuation is more favorable compared to its peers when considering its revenue.



Growth Prospects

TSM's growth prospects are driven by several factors, including its dominant position in semiconductor manufacturing, strong revenue growth, technological leadership, and a diversified customer base. The increasing demand for AI chips, which accounted for a significant portion of TSM's full-year revenue in 2024, further highlights the company's growth potential.

TSM's expansion into new markets and ongoing research and development investment will support its long-term growth. From a fundamental analysis perspective, TSM's financial health remains strong, with revenue growth and expanding profit margins contributing to its growth prospects.

Analyst Ratings and Price Targets

Analysts have a strong buy consensus on TSM, with an average price target of $232.5, which is 14.03% higher than the current price. The average target predicts an increase of 14.03% from the current stock price of $203.90.

Conclusion

TSM's strong financial performance, favorable valuation metrics, and robust growth prospects make it an attractive investment option in the tech industry. However, investors should consider the geopolitical risks associated with the U.S.-China relationship and the potential impact on TSM's operations. Despite these risks, TSM's dominant position in semiconductor manufacturing and strong fundamentals make it a compelling choice for investors seeking exposure to the tech sector.

Rating: Strong Buy (Reiterated).