TSMC Gains Momentum from Japanese Expansion and AI Demand

A firm denial of construction delays at a key Japanese facility, coupled with robust analyst support and surging AI-driven demand, is providing Taiwan Semiconductor Manufacturing Company (TSMC) with a favorable start to the trading week. The narrative for investors is shifting away from operational concerns and toward assessing whether the chipmaker's lofty growth expectations are justified.

Market sentiment received a significant boost from Japan on Friday. Yuichi Hotta, President of TSMC's subsidiary JASM (Japan Advanced Semiconductor Manufacturing), officially confirmed that construction of the second wafer fabrication plant in Kikuyo, Kumamoto Prefecture, is progressing on schedule. He explicitly refuted market rumors suggesting potential holdups.

This clarification carries substantial strategic weight. The Japanese facilities are central to TSMC's strategy of geographically diversifying its manufacturing footprint and reducing concentration risks in Taiwan. Consequently, even unsubstantiated speculation about delays had previously weighed on market mood.

Despite noticeable pressure on TSMC's shares in its home Taiwanese market last week, data reveals a contrasting story of deepening investor commitment. According to the Taiwan Stock Exchange, the number of TSMC shareholders climbed to 1.88 million by December 20, reaching the highest level since April 2025. A striking detail is the growth among retail investors holding "Odd Lots" (fewer than 1,000 shares), whose numbers surged by over 25,000 to approximately 1.4 million. This trend indicates widespread retail confidence in the firm's long-term outlook.

The institutional perspective remains equally constructive. Morgan Stanley has raised its price target for TSMC to 1,888 Taiwan dollars, forecasting revenue growth of 30% for 2026. The investment bank highlights the company's commanding market position, noting TSMC held a 72% share of the global foundry market in the third quarter of 2025.

Regarding valuation, the US-listed ADRs trade at a price-to-earnings (P/E) ratio of approximately 29.6. Analysts at The Motley Fool consider this relatively moderate in the context of an anticipated annual earnings growth rate of about 28% over the next three to five years. This stands in contrast to US rival Intel, which continues to grapple with losses in its foundry business and has secured few major external customers for its 18A process, despite a strong stock rally in 2025.

The AI Supercycle Fuels the Investment Thesis

The broader semiconductor sector is reinforcing TSMC's growth story. Recent figures from Micron Technology underscore the strength of the AI trend: the memory chipmaker reported record results for its first fiscal quarter of 2026 and stated its entire production of High Bandwidth Memory (HBM) for 2026 is already sold out.

This development is directly relevant to TSMC. The company's advanced CoWoS (Chip-on-Wafer-on-Substrate) packaging technology is essential for integrating HBM modules with high-performance processors from companies like Nvidia and AMD—a core component of modern AI servers.

Should investors sell immediately? Or is it worth buying TSMC?

The sector continues to be characterized by heavy investment. On December 19, major server manufacturer Wistron approved a $683 million investment program to expand its AI server capacity, signaling sustained high demand for TSMC's manufacturing of related chips.

Major cloud providers are adding to the momentum. Amazon Web Services (AWS) is reportedly in talks to invest over $10 billion in OpenAI, while concurrently relying on its own Trainium chips, which are manufactured by TSMC. These developments are further filling the order pipeline for 2026.

In European trading, current price data shows the stock has recovered significantly from its correction and now trades well above its spring levels. The share is up roughly 25% year-to-date, quoted at around 247 euros, comfortably above its 200-day moving average of 207.31 euros.

Key Data Points:
* Japan Operations: Construction of the second Kumamoto fab is "on schedule"; delay rumors were dismissed.
* Shareholder Base: Taiwanese shareholder count reaches 1.88 million, with a notable increase in small retail investors.
* Analyst View: Morgan Stanley raises price target to 1,888 TWD, expects 30% revenue growth in 2026.
* Market Dominance: 72% global foundry market share in Q3 2025.
* AI Demand: Micron's 2026 HBM production is sold out; strong signals from the AI server ecosystem.
* Valuation: P/E of ~29.6 with expected ~28% annual earnings growth over 3-5 years.

2026 Outlook: Pricing Power and 2nm Technology as Catalysts

The technical and fundamental picture appears solid for the coming months. The clear rebuttal of the Japan rumors removes a near-term overhang. Attention is now turning toward pricing strategy and key technological milestones for 2026.

Market experts anticipate that planned price increases of 3% to 10% on advanced manufacturing nodes in 2026 will support gross margins. Concurrently, the overall market is expanding: the global semiconductor industry is projected to grow to approximately $1 trillion by 2030, potentially reaching $2 trillion by 2040.

A critical factor will be the smoothness of TSMC's rollout of its 2nm technology in 2026. This next-generation process is seen as the next major catalyst for securing its leading position in the high-end segment and meeting intense demand from the AI sector. In the immediate term, focus remains on the performance of the US ADRs this week, specifically on whether they can decouple from the recent softness in the Taiwan-listed shares and align with the positive fundamental data.