Prediction: TSMC Stock Is Going to Soar After July 16

Taiwan Semiconductor Manufacturing (NYSE: TSM) stock has clocked respectable gains of 35% so far this year. However, TSMC's gains pale in comparison to the 67% jump in the PHLX Semiconductor Sector index.

But that may change after the company releases its second-quarter results on July 16. Let's look at the reasons why TSMC's upcoming results could supercharge this semiconductor stock next week.

Image source: TSMC.

The market is underestimating TSMC's potential

TSMC is the world's largest semiconductor foundry, with a market share of 73%, according to Counterpoint Research. Foundries manufacture chips that fabless companies, such as Nvidia, Broadcom, Advanced Micro Devices, Apple, and others design. TSMC, therefore, plays a crucial role in the global semiconductor ecosystem, manufacturing chips for major customers and for a wide variety of applications.

TSMC's position as the largest semiconductor foundry gives it immense pricing power. Tom's Hardware reported last month that it is going to increase the prices of its advanced chipmaking nodes by 5% to 10%. The report added that TSMC has already started rolling out the price hikes. What's worth noting is that TSMC wasn't looking to hike the price of its advanced process nodes just a month ago, but it seems the overwhelming demand for its chips eventually led to such a step.

After all, TSMC's advanced nodes, which are 7-nanometer (nm) and smaller, are used to make artificial intelligence (AI) chips for data centers, smartphones, and personal computers (PCs). AI accelerators, such as graphics processing units (GPUs) and custom chips, are in terrific demand. The company notes that its AI accelerator revenue will increase at a compound annual growth rate (CAGR) in the high 50% range through 2029.

Given that TSMC expects the tight supply situation to persist due to rapidly growing semiconductor demand, it won't be surprising to see further price hikes from the foundry giant. TSMC recently pointed out that the global semiconductor industry's revenue could reach $1.5 trillion in 2030, up 50% from its earlier forecast.

The company has been accelerating the build-out of advanced fabs to serve the high-performance computing (HPC) and smartphone markets. These advanced nodes command higher prices due to the better performance and efficiency they offer, suggesting they can drive a stronger increase in TSMC's revenue and earnings.

So, it won't be surprising to see TSMC's earnings growth outpacing the 49% bottom-line jump that analysts are expecting in 2026.

Why the stock could step on the gas after July 16

We have seen that TSMC can exceed Wall Street's growth expectations due to the terrific semiconductor demand and the company's strong pricing power. As a result, there is a strong likelihood the company's Q2 earnings per share will exceed the $3.83 consensus estimate, which suggests a 55% year-over-year increase in its bottom line.

TSMC's earnings increased nearly 65% year-over-year in Q1, and the reported price hikes could help it match that growth rate in the current quarter. Also, analysts are forecasting TSMC's Q3 earnings to increase by 45% year over year, though the points discussed above indicate it could do better than that. So, TSMC's stronger-than-expected results and guidance could pave the way for more upside in this chip stock in the second half of the year, and in the long run.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.