Taiwan Semiconductor Manufacturing Company Ltd. (TSM)

FairStock Score: 80/100 — HIGH CONVICTION

Key Financials

Strengths

• Generates $721.6 billion in annual free cash flow (36.8% yield on market cap)
• High return on equity of 36.2% demonstrating efficient capital deployment
• Conservative balance sheet with debt-to-equity of just 0.17, providing financial flexibility
• Healthy net profit margin of 13.9% showing consistent profitability
• Revenue growth of 20.4% demonstrates strong top-line momentum

Concerns

• Trades significantly above Graham Number ($233) with negative 62% margin of safety—limited downside protection
• At $2.0 trillion market cap, the law of large numbers makes sustained high growth increasingly difficult

AI Analysis

Taiwan Semiconductor Manufacturing Company Ltd. is a mega-cap technology company valued at $2.0 trillion. The business generates $4.1 trillion in annual revenue with a 13.9% net margin and $721.6 billion in free cash flow. From a quality standpoint, Taiwan shows Altman Z-Score of 2.1 in the grey zone and strong 36% ROE. On valuation, the stock is trading at a premium 32.8x earnings, with trades above its Graham Number with a negative 62% margin. Growth dynamics show revenue growing at 20.4% and profit growth of 34.9%. Our composite FairStock Score of 78/100 reflects strong fundamentals overall. Investors should weigh the business quality against the current price and their own margin of safety requirements.

Bull Case

Taiwan's 20% revenue growth trajectory could accelerate as it captures additional market share in the technology sector. With $721.6 billion in annual free cash flow (36.8% yield), management has ample capital for buybacks, dividends, or accretive acquisitions.

Bear Case

At 33x earnings, any growth disappointment triggers rapid multiple compression—a 20% earnings miss plus multiple contraction to 20x implies 40%+ downside. Regulatory changes, input cost inflation, or demand normalization represent underappreciated risks that could materially impact forward estimates.

Data from SEC filings. AI analysis is for educational purposes only — not investment advice. Scoring methodology · Disclaimer