Is Taiwan Semiconductor Stock an Undervalued AI Stock to Buy Right Now? | TSM STock Analysis
Summary
Parkev discusses Taiwan Semiconductor Manufacturing Company (TSM), highlighting its significant growth driven by the proliferation of AI, particularly agentic AI, which is creating additional demand for CPUs, memory, and storage components beyond just GPUs. This surge in demand has led TSM to invest heavily, including an additional $100 billion in Arizona for new manufacturing facilities, to expand capacity as they are already sold out. Parkev notes that TSM is generating this demand with premium pricing and achieving record-high operating profit margins, recently at 55.84% over the last 12 months, the highest in a decade. Although management anticipates future margin compression due to higher production costs in new facilities outside Taiwan, this has not materialized yet due to high capacity utilization.
He also addresses the geopolitical diversification aspect, as customers like Nvidia, Apple, and AMD are concerned about the concentration of manufacturing in Taiwan. Investments in the US are supported by government subsidies and tariff threats, but come with higher operational costs. Parkev praises TSM's capital allocation efficiency, noting its return on invested capital has consistently exceeded its weighted average cost of capital over the last decade, indicating the company's capability to manage large investments effectively.
Despite a more than 48% increase in TSM's stock price year-to-date in 2026, Parkev considers its valuation attractive. He points out that while the forward price-to-earnings ratio is near its highest in recent years, the absolute valuation is not overly expensive and trades at a discount compared to the average S&P 500 stock. This discount, according to Parkev, is primarily due to geopolitical concerns, suggesting that the risk premium is already factored into the stock's price. Based on his discounted cash flow analysis, Parkev calculates a fair value of $639, indicating an upside potential of 43% from the current market price of $445 over the next 12 to 18 months.
Mentioned Stocks
Reasoning: Parkev views Taiwan Semiconductor Manufacturing Company (TSM) as a strong buying opportunity, reiterating his high conviction. He notes that the stock has traded at a discount compared to the S&P 500 average due to geopolitical risks, which he believes are already priced in. TSM is experiencing booming demand for its manufacturing services, fueled by agentic AI, necessitating significant capacity expansion. Despite management's warnings about lower future profit margins due to higher production costs in new facilities (like Arizona), these have not yet materialized because of high capacity utilization. Parkev's discounted cash flow analysis calculates a fair value of $639, indicating a 43% upside potential from the current market price of $445 over the next 12 to 18 months.