TSMC's May 2025 Revenue Surge: Can Semiconductor Demand Stay Strong?

TSMC's May 2025 revenue of NT$320.52 billion (US$10.8 billion) marked a 40.5% year-over-year increase compared to May 2024, underscoring the sustained momentum in global semiconductor demand. While the monthly figure dipped 8.3% from April 2025's NT$349.57 billion, the year-on-year growth highlights the critical role of advanced chips in driving TSMC's performance. This article examines whether this demand surge is sustainable, its implications for TSMC's valuation, and what investors should consider before betting on the semiconductor giant.

The AI-Driven Growth Machine

TSMC's revenue growth is being fueled by an unprecedented boom in artificial intelligence (AI) and high-performance computing (HPC) applications. In Q1 2025, HPC-related revenue surged over 70% year-over-year, accounting for nearly 60% of total sales. This growth is directly tied to TSMC's leadership in advanced process nodes:
- 3nm (N3) technology contributed 22% of wafer revenue in Q1 2025, up from 18% in Q4 2024.
- 5nm and 7nm nodes collectively accounted for 51% of wafer revenue, reflecting their use in AI accelerators, cloud infrastructure, and consumer electronics.

The company's capacity expansions—such as its U.S. Arizona facility and CoWoS packaging lines—are critical to meeting this demand. TSMC expects AI accelerator sales to double in 2025 alone, with a compound annual growth rate (CAGR) of 45% through 2029. This trajectory suggests that AI is not a fleeting trend but a foundational shift in computing infrastructure.

Risks Lurking in the Shadows

Despite the optimistic outlook, several risks could disrupt TSMC's growth:
1. Geopolitical Tensions: U.S.-China trade disputes and Taiwan Strait risks remain existential threats. TSMC's Arizona plant, supported by a $6.6 billion U.S. subsidy, aims to diversify its production, but its Taiwan facilities remain vulnerable.
2. Tariff Volatility: U.S. import restrictions on Taiwanese semiconductors briefly imposed early in 2025 caused customers to stockpile chips, inflating Q1 revenue. This could lead to inventory corrections in 2025, creating near-term headwinds.
3. Cost Pressures: Scaling 2nm production and overseas operations has increased costs, slightly compressing gross margins (to 58.8% in Q1 2025 from 59% in Q4 2024). TSMC's 30% price hike for U.S.-made 4nm chips underscores the financial strain of global expansion.

Valuation: Overcooked or Undervalued?

TSMC's stock price has lagged behind its revenue growth in recent years, offering investors a potential entry point.

• Price-to-Earnings (P/E) Ratio: At 12.5x trailing earnings, TSMC trades at a discount to its five-year average of 14.2x, despite record profitability.
• Return on Equity (ROE): TSMC's ROE of 27% in Q1 2025 remains robust, reflecting strong capital allocation.

However, the stock's valuation hinges on sustaining AI demand. If HPC revenue growth slows to mid-teens in the next few years—closer to historical semiconductor industry averages—TSMC's growth narrative could weaken.

Investment Takeaways

1. Long-Term Bull Case: TSMC's dominance in advanced nodes and AI infrastructure positions it as a critical supplier for the next decade. Investors with a 3–5+ year horizon could benefit from its secular growth.
2. Near-Term Caution: Short-term risks like inventory corrections and geopolitical instability may lead to volatility. Consider dollar-cost averaging into dips.
3. Dividend Potential: TSMC's dividend yield of 1.8% is modest, but its strong cash flow could support gradual increases if margins stabilize.

Conclusion

TSMC's May 2025 revenue reaffirms its status as the semiconductor industry's growth engine, driven by AI's insatiable appetite for advanced chips. While risks such as geopolitical turmoil and inventory imbalances loom, the long-term structural demand for AI infrastructure suggests TSMC remains a buy for patient investors. For now, the question isn't whether TSMC will grow—it will—but whether the market will reward its valuation at fair multiples.

Investment Recommendation: Hold or buy TSMC for a diversified portfolio, but avoid aggressive bets until near-term macroeconomic and geopolitical uncertainties clarify.