Taiwan Semiconductor's (TSM) Valuation and Strategic Risks: Do Stake Reductions Signal a Reevaluation of Long-Term Growth?

In the ever-shifting landscape of the semiconductor industry, Taiwan Semiconductor Manufacturing Company (TSM) remains a cornerstone of innovation and demand. However, recent stake reductions by prominent investors, including Steve Weiss of Short Hills Capital Partners and NS Partners Ltd, have sparked questions about whether these moves signal a reevaluation of TSM's long-term growth prospects. This analysis examines TSM's valuation, strategic risks, and the broader industry context to determine if these stake reductions reflect a broader sentiment shift or are isolated cautionary measures.

Valuation Metrics: A Mixed Picture of Strength and Caution

TSM's 2025 valuation metrics paint a picture of a company balancing robust financial performance with cautious investor sentiment. The stock trades at a trailing price-to-earnings (PE) ratio of 24.16 and a forward PE of 22.78, reflecting strong earnings expectations despite a market cap of $1.19 trillion, according to stockanalysis statistics. Analysts have set an average price target of $286.67 for 2025, slightly below the current price, according to those statistics. Meanwhile, TSM's price-to-sales (P/S) ratio of 10.27 and enterprise value-to-EBITDA (EV/EBITDA) ratio of 13.75 indicate a valuation that, while elevated, remains competitive within the semiconductor sector, per financecharts EV/EBITDA data.

These metrics highlight TSM's dominance in advanced-node manufacturing, particularly in AI-driven chips, which now account for nearly 59% of its revenue mix, according to a Monexa analysis. However, the company's beta of 1.20 underscores its higher volatility compared to the market average, a factor that may have prompted some investors to trim positions amid macroeconomic uncertainties, as noted in the stockanalysis statistics.

Strategic Risks: Geopolitical Tensions and Supply Chain Shifts

The semiconductor industry in 2025 is defined by two interlinked forces: the explosive demand for AI chips and the geopolitical realignment of supply chains. TSM's strategic position as the world's leading foundry places it at the intersection of these dynamics, but also exposes it to significant risks.

Geopolitical tensions, particularly U.S.-China relations, remain a critical concern. Steve Weiss, for instance, explicitly cited TSM's exposure to potential conflict in the Taiwan Strait as a reason for his stake reduction. He noted the incongruity of defense stocks rising on military production optimism while TSM, operating in a region deemed "ground zero" for conflict, faces muted investor caution, as reported in a Yahoo Finance report. Additionally, U.S. export controls on advanced chips to China could impact 4–15% of TSM's revenue, depending on the scope of restrictions, according to a Haydn Chen analysis.

Simultaneously, U.S. onshoring initiatives, such as the CHIPS and Science Act, are reshaping TSM's operational strategy. The company is investing heavily in U.S. facilities, including its Arizona fab, to align with government priorities. However, these expansions come with challenges, including regulatory scrutiny, construction delays, and talent redistribution from Taiwan to the U.S., which may temporarily slow domestic production, as highlighted in the Haydn Chen analysis.

Stake Reductions: A Broader Sentiment Shift or Isolated Caution?

The recent stake reductions by Weiss and NS Partners Ltd must be contextualized within the broader analyst consensus. While these moves reflect individual risk management strategies, they do not necessarily indicate a widespread reevaluation of TSM's long-term prospects. Analysts remain overwhelmingly bullish, with a "Strong Buy" rating and an average price target implying 14.6% upside potential, according to a Nasdaq analysis. TSM's Q2 2025 earnings, which showed a 60.7% net profit increase and revenue of NT$933.8 billion, further reinforce its financial resilience (reported in the Haydn Chen analysis referenced above).

However, the reductions do highlight growing awareness of structural risks. For example, Weiss's concerns about geopolitical exposure align with broader industry trends, such as the U.S. government's push for domestic chip production and the potential for new tariffs on semiconductors, as noted by Fortune Business Insights. These factors could reshape supply chains and pricing strategies, creating both opportunities and challenges for TSM.

The Investment Case: Balancing Growth and Risk

TSM's investment case in 2025 hinges on its ability to navigate geopolitical risks while capitalizing on AI-driven demand. The company's technological leadership-evidenced by its 90% yield rates on 3nm processes and advanced packaging innovations like CoWoS-positions it to dominate the AI chip market, a point discussed in the Monexa analysis cited earlier. Moreover, its geographic diversification strategy, including U.S. and European expansions, aims to mitigate regional risks.

Yet, investors must remain cautious. The semiconductor industry's cyclical nature, coupled with the potential for policy shifts under a future U.S. administration, introduces volatility. TSM's forward PE of 22.78, while lower than peers like Nvidia, reflects a valuation that already incorporates some level of risk discounting, per the Nasdaq analysis referenced above.

Conclusion

The recent stake reductions by top analysts in TSM are not a definitive signal of a reevaluation of long-term growth but rather a reflection of heightened awareness of geopolitical and regulatory risks. While TSM's valuation and financial performance remain strong, the semiconductor industry's evolving landscape-marked by AI demand, supply chain realignments, and U.S.-China tensions-demands a nuanced investment approach. For long-term investors, TSM's strategic adaptability and technological edge may outweigh its risks, but short-term volatility and policy uncertainties warrant careful monitoring.