1 Reason TSMC Stock Could Rally After Its Record Quarter

Taiwan Semiconductor Manufacturing (NYSE: TSM) is up about 39% year-to-date as of Oct. 15, 2026, compared to about 13% for the S&P 500. The world's largest contract chipmaker, which manufactures processors for many of the biggest names in tech, just reported record quarterly revenue. And the stock could keep climbing for one reason: Demand for AI chips is still outpacing TSMC's ability to make them.

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Third-quarter revenue surged 41% over the year-ago quarter, reaching $46.7 billion. Its high-performance computing business, which includes artificial intelligence (AI) data center chips, made up 68% of sales. Management expects fourth-quarter revenue of $52.3 billion to $54.3 billion, representing year-over-year growth of about 58% at the midpoint.

TSMC had forecast that sales of AI accelerators (the specialized chips that train and run AI models) would grow at a mid- to high-50s percentage rate annually through 2029. On the Oct. 15 earnings call, Wei said, "It probably will be higher," adding that demand is "still far above our capability today to supply."

Wei also said that TSMC is planning cautiously for 2027, given macroeconomic uncertainty. Rising component prices are pressuring demand in consumer electronics markets, as device makers raise prices to offset cost inflation. This could put pressure on TSMC's smartphone business, which accounted for 21% of third-quarter revenue.

Still, surging demand for AI chips remains the growth engine for TSMC. The stock trades at about 19 times analysts' 2027 earnings estimates, while Wall Street expects earnings to grow 38% annually over the next several years. That's an attractive valuation for the prospect of high double-digit earnings growth, making the stock a compelling buy now.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.