Taiwan Semiconductor Manufacturing Company (NYSE: $TSM), also called TSMC, is the world’s biggest semiconductor foundry. It makes chips based on the designs of other companies. On Thursday, April 17, 2025, before markets opened, TSMC released its first quarter fiscal 2025 results.
TSMC Releases Q1 Results
For the first quarter of fiscal 2025, TSMC reported revenue of ~$25.53 billion, a 35.3% YoY increase, and a diluted EPS of ~$2.12, a 60% YoY increase. The company reported free cash flow of $9.07 billion, a gross margin of 58.8%, an operating margin of 48.5%, and a net profit margin of 43.1%.
Chip Business Highlights
In Q1, 3-nanometer shipments accounted for 22% of total wafer revenue, while 5-nanometer chips accounted for 36% of the revenue. Meanwhile, 7-nanometer chips accounted for 15% of the revenue. Overall, advanced chips in the 7-nanometer chips category, and higher, accounted for 73% of the total wafer revenue.
TSMC Q2 Guidance
TSMC expects revenue of $28.4 billion to $29.2 billion in Q2, which is a 38% YoY increase at the midpoint, and a gross profit margin of 57% to 59%. Additionally, it expects an operating profit margin of 47% to 49%.
Impact of Tariffs
In the Q1 report, Wendell Huang, Senior VP and CFO at TSMC, noted that their Q1 results were impacted by the seasonality of the smartphone business. He noted that in Q2, he expects their business to be supported by rising demand for their cutting-edge 3nm and 5nm chips. He noted that so far, they had not seen any changes in their customers’ behaviors from the impact of tariff policies. However, he notes that the potential for such an impact is real.
US pressure on China continues to impact TSMC revenue from China, which dipped to 7% from 9% of total sales in the same period last year. The company expects its Q2 gross margin to dip by 80 basis points to 58% at the midpoint, related to the costs of ramping up its operations in the Arizona chip foundry. The company expects margin pressures to intensify throughout the year, with a 2-3% annual hit from its overseas foundries in Kumamoto, Japan, and Arizona.
Market Performance
Following the double-digit revenue and earnings growth, and positive outlook, TSMC shares soared 1.83% during the morning trading session to $154.45 as of 9:49 AM EDT on April 17, 2025. The stock is down 23.25% year to date, and down 17.96% in the past six months. Over the past 12 months, the stock is up 10.01%. Its current price is below both the 50 and 200-day moving averages of $178.46 and $184.07, respectively.
Analysts are optimistic about the future of $TSM stock, giving it a strong buy rating. They forecast an average price of $237.20, which is a 53.77% upside based on the most recent price. The analysts give a wide range of forecasts, with a high of $255 and a low of $215.
Is Now The Time To Add TSM To Your Portfolio?
Many analysts believe that the current stock price of TSMC is undervalued, at a forward P/E of 16.89, especially compared to other companies in the chip business like NVIDIA, which has a forward P/E of 23.26.
One of the reasons for the undervaluation might have to do with geopolitical tensions, with the company’s foundry being at some level of risk in case of conflict between China and the US. However, the company is building foundries in Arizona and Japan, which should help to spread risk and reassure investors.
With rising demand for AI chips, driven by growing AI use cases, adding $TSM stock to your portfolio could potentially be beneficial in the medium and long term.
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