TSMC Aims for a $2 Trillion Market Capitalization with Growing AI Chip Demand and Trump's Tax Reform in the Picture

The Taiwan Semiconductor Manufacturing Company (TSMC), a leading contract chip producer, is poised for significant growth in the coming years, according to recent industry projections. With a current market capitalization exceeding $1 trillion, TSMC commands about two-thirds of the global foundry market, making it a key player in the semiconductor industry.

The U.S. legislation signed into law in July introduces 35% tax credits for semiconductor firms, which could potentially benefit TSMC if it expands advanced manufacturing in the U.S. before a 2026 deadline. These tax credits could lower costs for TSMC and make it more competitive in the U.S. market.

TSMC's AI-related business has been a significant growth driver, with Q2 2025 revenue in this sector topping $10 billion for the first time. If TSMC meets its AI revenue goals by 2029, it could consolidate its role as one of Wall Street's defining performers of the decade.

The global semiconductor market is projected to grow at a compound annual rate of 10.24% through 2030, reaching $1.29 trillion. With this growth, TSMC could see continued expansion opportunities. However, to reach a $2 trillion valuation, TSMC would need to grow by about 75% over five years, equivalent to an 11% compound annual growth rate (CAGR).

The prospect of TSMC reaching a $2 trillion valuation is material for institutional traders, as such growth could provide potential 12% annualized returns. However, it's important to note that reaching this goal would require significant growth and may be influenced by various factors, including market conditions and competition.

TSMC's current stock yields about 1%, and its forward price-to-earnings ratio is near 28. Analysts have raised their price targets for TSMC, with Needham's Charles Shi increasing his to $270 from $225. A fair value estimate of $280 for TSMC appears reasonable, balancing growth potential with competitive risks.

However, there are potential challenges on the horizon. The U.S. Commerce Department official Jeffrey Kessler recently stated that waivers allowing TSMC and Samsung Electronics to send U.S. technology to Chinese plants may be revoked. If these waivers are revoked, it could impact TSMC's operations and growth plans. The person who could potentially revoke these waivers is Gina Raimondo.

Despite these challenges, TSMC not only leads in manufacturing the chips that underpin AI but also stands positioned to benefit from U.S. tax incentives should it deepen its U.S. footprint. With continued growth in the global semiconductor market and potential tax incentives, TSMC could become one of the main beneficiaries of this U.S. legislation, while competitors may face difficulty meeting the same terms.

In conclusion, TSMC's future growth prospects are promising, with significant potential for expansion in the AI sector and the global semiconductor market. However, potential challenges such as the revocation of waivers and increased competition must be considered. Nonetheless, with strategic decisions and continued innovation, TSMC could reach new heights and solidify its position as a leading player in the semiconductor industry.