Semiconductor demand isn’t slowing down, driven by a persistent increment in artificial intelligence (AI) data center capacity. Market research firm Gartner expects the semiconductor industry to generate $1.6 trillion in revenue this year, up 92% from last year.
The firm expects another impressive double-digit jump in 2027 to $1.9 trillion. It is worth noting that AI data centers will account for 53% of the global semiconductor industry revenue in 2030, up from 36.5% in 2026. This is great news for Nvidia, Advanced Micro Devices, and Broadcom, which have benefited immensely from the secular growth of the semiconductor market.
However, I won’t be surprised to see Taiwan Semiconductor Manufacturing (TSM +2.96%) outperforming these semiconductor stocks next year. Let’s look at the reasons why.
Image source: The Motley Fool.
Price hikes by TSMC’s customers point toward better times for the foundry giant
TSMC operates as a pure-play foundry, meaning it manufactures chips designed by its customers. These customers include Nvidia, AMD, and Broadcom. What’s worth noting is that TSMC’s key customers are raising prices to accommodate the foundry giant’s rising chipmaking fees.
Taiwan Semiconductor Manufacturing
Today’s Change
(2.96%) $13.58
Current Price
$472.78
Key Data Points
Market Cap
$2.5TMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.
Day’s Range
$464.10 – $474.79
52wk Range
$266.82 – $479.00
Volume
9.9M
Avg Vol
11.5M
Gross Margin
63.08%
Dividend Yield
0.80%
For instance, AMD will reportedly implement a 10% price hike on its chips in the fourth quarter of 2026. It is worth noting that some of AMD’s products could see a 15% price increase. AMD is moving in Nvidia’s footsteps, with the graphics card giant recently implementing 15%-plus price hikes, according to Bloomberg.
These price hikes bode well for TSMC. In fact, TSMC plays a major role in the higher prices Nvidia and AMD will charge customers. That’s because TSMC is a price maker owing to its 73% market share in the pure-play foundry market. As a result, customers like AMD and Nvidia need to accept the price hikes that TSMC implements.
It is worth noting that TSMC will increase its chipmaking fees by 10% from 2027, as reported by Nikkei Asia in July. Moreover, TSMC reportedly charges 10%-15% higher prices from customers who place orders above the initial commitment. Nvidia points out that the addressable market for its AI chips will reach $1 trillion next year, double the opportunity it estimates for 2026.
So, TSMC is likely to benefit from higher shipment volumes and improved pricing in 2027, which should allow the company to post a larger earnings jump than analysts expect. Specifically, analysts expect TSMC’s earnings per share (EPS) growth rate to slow from 59% in 2026 to 29% in 2027.
However, that’s unlikely to be the case due to the reasons discussed above. There is a strong chance TSMC will easily outpace consensus estimates and deliver big gains to investors in 2027.
TSMC stock can jump higher in 2027
TSMC’s earnings are expected to reach $16.93 per share in 2026 and jump to $21.93 per share in 2027. Assuming TSMC clocks a faster bottom-line jump of 40% next year, its earnings per share could reach $23.70 (using the 2026 EPS estimate as the base).
Another point worth noting is that TSMC trades at 21 times forward earnings. That’s a discount to the Nasdaq Composite index’s average earnings multiple of 39. TSMC’s ability to outperform Wall Street’s expectations next year could be rewarded with a premium valuation on the market. Moreover, TSMC stock is cheaper than AMD and Nvidia.
AMD trades at almost 40 times forward earnings, while Nvidia’s multiple stands at 25. TSMC, therefore, could easily trade at 30 times earnings if its earnings per share increase at a faster pace than the market’s expectations. So, this AI stock could jump to $711 by the end of 2027 (assuming $23.70 in earnings per share and a 30x earnings multiple).
That suggests potential upside of 56%, which is why investors can consider buying it before it soars higher following its 50% jump in 2026.