TSMC: Robust Margins, Strong Guidance, The Market Is Getting Out Of Hand Here

Taiwan Semiconductor Manufacturing Company delivered strong Q2 results, with EPS up 74% and revenue up 34%, but shares declined on CapEx concerns. TSM's elevated CapEx guidance ($60–64B) and $100B expansion plan raised market worries, yet margins and free cash flow expanded robustly. Despite near-term volatility risks from spending and margin contraction, TSM’s AA-rated balance sheet and competitive moat support long-term upside. I initiate TSM at a buy, seeing potential for >100% upside by 2028 with AI-driven growth and reasonable valuation at 23x forward earnings.

Technology (XLK) and chip stocks have been underperforming recently. While I think the market's growing concerns surrounding elevated CapEx have some merit, I also believe it's starting to overreact.