• Goldman Sachs argues Taiwan Semiconductor (TSMC) is undervalued, citing strong AI demand and custom chip momentum.
  • The firm expects pricing power, productivity gains, and AI-driven growth to boost TSMC’s profitability ahead of its next earnings.
  • TSMC shares rallied as investors recalibrated expectations around AI chip demand and expansion plans.

Goldman Sachs has issued a bullish note on Taiwan Semiconductor Manufacturing Co. (TSMC), asserting that the stock is poised to rally as investors underestimate its improving fundamentals. After meeting with over 35 investors, the firm found that AI demand remains robust, with custom AI chips emerging as the top theme. Goldman argues that TSMC’s pricing power, productivity gains, and AI-driven growth will lift profitability, making the stock likely to catch up ahead of its upcoming earnings report.

The call helped drive a rally in TSMC shares as investors recalibrated expectations around AI chip demand and the company’s expansion plans. TSMC, the world’s largest contract semiconductor manufacturer, serves major clients such as Nvidia (NVDA) and Apple (AAPL) and has been a key beneficiary of the AI boom. Its revenue and margins have benefited from AI-related demand, and market chatter has repeatedly tied its fortunes to AI deployment cycles.

Goldman’s note follows a period of AI-fueled demand growth and ongoing capacity expansions, including planned capital expenditure to scale 2nm and other advanced nodes. The outlook emphasizes stronger pricing power and higher utilization of existing assets. As a Taiwan-based tech exporter, TSMC’s performance is closely linked to AI-related hyperscale spending and the broader tech cycle.

“Pricing power at a leading foundry like TSMC can influence supply-chain pricing and product cycles across the AI stack,” said an analyst familiar with the matter. This has implications for competitors and suppliers worldwide. Policy developments in major markets, such as national tech strategies and export controls, could also affect TSMC’s growth trajectory and capex plans.

Investors are watching for earnings results to validate AI-driven margin gains and execution on capacity expansions. If AI demand remains robust and TSMC hits its capex targets with improving efficiencies, gross margins could expand further, potentially lifting earnings per share and supporting a continued stock rally into the next earnings release.

We reached out to TSMC for comment but did not receive an immediate response.

Correction: An earlier version of this article misstated the number of investors Goldman met with. It is 35+.