A lot of people say TSM is undervalued right now because of geopolitical risk. There’s no question TSM is a great company. But the market keeps focusing on worst-case scenarios, and I think it’s worth discussing whether that uncertainty is already being priced in too much.
From a fundamentals perspective, TSM still has clear strengths in advanced process nodes, capital efficiency, global foundry market share, and pricing power. Its long-term competitive position hasn’t really changed.
If geopolitical risk is something that’s always there but low probability, does today’s valuation actually offer a margin of safety? Or is this the kind of risk that shouldn’t be ignored at all?
Curious to hear what others think is TSM undervalued here, or is the market pricing it fairly?
Is TSM actually undervalued because of geopolitical risk, or is the market pricing it pretty fairly already?
byu/Fantlastic_Tree_6671 instocks
Posted by Fantlastic_Tree_6671
6 Comments
No free lunch, my friend. If you get what I say… 😉
I don’t understand these types of question. Do you think the All-Knowing-Oracle frequents this sub to answer you? Maybe you’re expecting people do value the company for you? Or maybe you’re just asking for fun so some low effort answer is enough? They are all bad options
The ‘geopolitical risk’ is that the PRC tries to invade Taiwan, and the consensus among military experts is that 2027 is the most likely year for that to occur.
If an invasion is attempted, TSMC shares would probably fall to zero or very close to it, regardless of if the invasion is ultimately successful or not, as there are only two outcomes:
1. The PRC’s invasion succeeds, in which case TSMC as we know it ceases to exist.
2. Taiwan’s defense succeeds, but TSMC fabs and administrative facilities on the island are completely destroyed. Many of the employees are conscripted and killed in the conflict. This would all be accompanied by a global economic downturn as most of the world drastically reduces trade with the PRC.
So there is a very real chance that your shares could become worthless within the next two years.
With that in mind, I personally think that TSMC is actually way overvalued. But I would rate it as a ‘hold’ until later into 2026 to see if war drums potentially start beating louder.
The geopolitical risk is the US trying to hallow out TSMC and Toshiba the company.
Right now some of the risk is priced in so I wouldn’t call it undervalued.
TSM is too big to fail without denting the global economy. So the more likely scenario is that if China gets close to invading, TSM would move their HQ and IP somewhere else. Perhaps Singapore or Korea.
Isn’t this exactly why TSMC is currently building multiple fabs in the USA, Japan, and Germany?