Until Next Gen Computing Implodes I’ll Keep Buying Taiwan Semiconductor

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I have added to Taiwan Semiconductor (NYSE:TSM) every time I have had spare cash this year, and the latest decline made the decision easier. The shares fell 15.69% over the past month to $398.61, so I bought again.

Why I Keep Coming Back

Here is my thesis. Every advanced AI chip has to be manufactured somewhere, whoever designs it, and the most advanced ones come out of TSMC’s fabs. Owning TSMC lets me collect from the whole next-generation computing expansion without picking which chip designer wins. Management said it obviously on the third-quarter call: “All the AI players are working with TSMC.”

Three Numbers That Keep Me Buying

First, growth keeps getting faster. Third-quarter revenue reached $46.72 billion, up 41.2% in U.S. dollar terms. Management has raised its full-year 2026 outlook three times in a row, from close to 30% growth in January to slightly above 40% in July and approximately 44% in October. Fourth-quarter guidance calls for $52.3 billion to $54.3 billion.

Second, profitability. Gross margin came in at 66.4%, operating margin at 58.7%, and return on equity at 45.5%. Each of those beats the company’s own through-the-cycle targets of 56%+ gross margin and ROE in the high-20s percent. Nodes at 7nm and below brought in 79% of wafer revenue, and 2nm rose from 3% to 8% in a single quarter.

Third, cash and income. TSMC generated $14.90 billion of free cash flow last quarter after spending $13.86 billion on capex, and it ended the quarter with $126 billion in cash and marketable securities. The quarterly dividend went up from NT$6.00 to NT$7.00. As a retirement investor, I want rising income paid for by real cash flow, and that is what I get here.

Why My Money Skips NVIDIA and Intel

The name most people reach for first is NVIDIA (NASDAQ:NVDA). It runs a great business, but the stock is trading at about 41 times earnings and pays a quarterly dividend of $0.25 per share. NVIDIA also depends on outside manufacturers, and its first Blackwell wafer made on U.S. soil came out of TSMC’s Arizona facility. I would rather own the supplier that gets paid by NVIDIA and by its competitors too.

Intel (NASDAQ:INTC) is the domestic foundry alternative. Its foundry segment posted a $1.85B operating loss in the third quarter, its GAAP gross margin was 43.0%, and its dividend yield is 0. Intel has also said its 14A node could be paused or discontinued if customer demand falls short.

Risk That Could Break This Position

The danger I take seriously is Taiwan. European auditors describe cross-strait tensions as “a source of persistent insecurity for the sector.” A conflict would hit this stock hard. Overseas expansion also costs money: margin dilution from overseas fabs is running closer to 2% and should increase to 3%–4% over the next few years.

That spending also reduces the risk I worry about most. TSMC’s second Arizona fab is on track for volume production in the third quarter of 2027, Japan is getting 3nm, and nearly 20 fabs are under way worldwide. Customer risk is spread out too, with 534 customers served in 2025.

What Keeps the Buy Button Active

N2 capacity should more than double in 2027. A14 goes into volume production in 2028, and management already sees more customer activity for it than it saw for 2nm. The 2024 to 2029 revenue CAGR target is approaching 25%, and C.C. Wei says “demand is higher than supply.” As long as the world needs more advanced chips than it can make, I will keep buying the company that makes them.

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