Taiwan Semiconductor Manufacturing Company Limited (TSM) operates a unique and powerful business model at the heart of the global technology industry. As the world's leading "pure-play" semiconductor foundry, TSMC doesn't design its own chips; instead, it focuses solely on manufacturing chips designed by other companies. Think of them as the most advanced and specialized factory in the world for computer brains.

Their main way of making money comes from producing these highly complex chips, known as wafers, for a vast array of customers across different industries. In 2025, TSMC manufactured 12,682 different products for 534 customers, showcasing their broad reach.

TSMC's revenue streams are primarily driven by demand for cutting-edge technology. In 2025, their High Performance Computing (HPC) segment was the largest contributor, generating NT$2,192,931 million, which accounted for 58% of their total revenue. Smartphones were the second largest, bringing in NT$1,110,816 million, or 29% of revenue. This trend continued into 2026, with strong demand for leading-edge process technologies, particularly from AI and HPC applications.

Their most advanced technologies, specifically those at 7-nanometer and beyond (a nanometer refers to the incredibly tiny size of the components on a chip, with smaller numbers meaning more advanced and powerful chips), are crucial. In 2025, these advanced technologies made up 74% of their total wafer revenue. By the second quarter of 2026, advanced technologies accounted for an even higher 77% of total wafer revenue. Within this, 5-nanometer chips contributed 33%, 3-nanometer chips accounted for 30%, and their newest 2-nanometer technology, which just started high-volume manufacturing in late 2025, already made up 3% of total wafer revenue.

Geographically, North America is their largest market, accounting for 75% of their net revenue in 2025.

The Metrics That Matter Most

For a company like TSMC, which is at the forefront of technological innovation and capital-intensive manufacturing, certain financial metrics provide the clearest picture of its health and future prospects.

1. Revenue: This is the total amount of money TSMC brings in from selling its manufactured chips. For TSMC, revenue is critical because it directly reflects the global demand for their advanced semiconductor manufacturing services. Given their position as the leading foundry, strong revenue growth indicates that more companies are choosing TSMC to produce their most advanced chips, especially for booming areas like Artificial Intelligence (AI) and High-Performance Computing (HPC). For example, TSMC's revenue for the second quarter of 2026 was US$40.20 billion, a 33.7% increase year-over-year, showing robust demand.
2. Gross Margin: This metric tells you how much profit TSMC makes from its core manufacturing business after subtracting the direct costs of making the chips (like materials and factory labor). For a company that invests heavily in research and development (R&D) and advanced manufacturing, a healthy and growing gross margin shows they can efficiently produce complex chips and command premium prices for their cutting-edge technology. In Q2 2026, TSMC reported a strong gross margin of 67.7%.
3. Capital Expenditures (CapEx): This refers to the money TSMC spends on buying, maintaining, or improving its physical assets, such as factories (fabs) and machinery. For TSMC, CapEx is incredibly important because it represents their investment in future growth and technological leadership. Building new, advanced chip factories and acquiring the latest equipment is essential to stay ahead in the semiconductor race and meet the ever-increasing demand for more powerful chips. TSMC's capital expenditures reached NT$1,272,411 million in 2025, and they expect 2026 CapEx to be between US$60 billion and US$64 billion, highlighting their continuous investment.
4. Net Income: This is the company's total profit after all expenses, including operating costs, interest, and taxes, have been deducted from revenue. Net income is the ultimate measure of a company's profitability and financial success. For TSMC, a consistently growing net income demonstrates their ability to translate strong demand and efficient operations into real earnings for shareholders. In Q2 2026, TSMC's net income was NT$706.56 billion, a significant 77.4% increase year-over-year.

How to Value This Company

The most relevant valuation metric for TSMC, given its consistent profitability and growth, is the P/E ratio (Price-to-Earnings ratio).

The P/E ratio helps you figure out if a stock is cheap or expensive by comparing its current share price to how much profit the company makes per share. You calculate it by dividing the stock's current price by its earnings per share (EPS).

For TSMC, the P/E ratio is a great tool because it's a well-established, profitable company with clear earnings. When you look at TSMC's P/E ratio, you're essentially seeing how much investors are willing to pay for each dollar of its annual earnings. A higher P/E ratio might suggest investors expect higher future growth, while a lower one could indicate the stock is undervalued or that growth expectations are lower. By comparing TSMC's P/E ratio to its historical P/E, or to the P/E ratios of similar companies in the semiconductor industry, you can get a sense of whether the stock is currently trading at a reasonable price based on its ability to generate profits.