Framework Convergence
Reasoning Chain
📐 Graham: 10-year average EPS ($4.52) × 20x max = $90 ceiling. Even TTM ($13.44) × 20 = $268.80. Current price has a 77% speculative component. Classification: INTELLIGENT SPECULATION by price. 7/12 tests PASS — company quality exceptional; price is the sole disqualifier.
🎯 Buffett: 10yr DCF projects $562 (conservative) to $707 (moderate). Growth stepped: 25% (3yr) → 18% (4yr) → 12% (3yr) from FY2025 base EPS $10.43. Score 13/14 (10 PASS, 0 FAIL, 2 CAUTION). Owner Earnings $72B/yr. Wonderful company at fair price.
🌐 Sowell: Controls the scarcest manufacturing resource in tech. Natural monopoly earned through $100B+ cumulative R&D — NOT artificial. Full price pass-through (64% GPM). CHIPS Act net positive. Geopolitical tail risk is external/political only.
🔍 Synthesis: All three AGREE the business is extraordinary. Graham says too expensive vs. historical. Buffett says fair-to-undervalued on forward DCF (29–44% upside). Sowell confirms ALCISTA environment. Resolution: HOLD existing, ACCUMULATE on dips below $380.
Action Levels
Price Thermometer
Intrinsic Value Calculation
Durable Competitive Advantage
TSMC possesses one of the widest economic moats in global business. It controls ~90% of the world's most advanced semiconductor manufacturing (≤7nm nodes), with no competitor closer than 18 months behind. Switching costs are enormous: redesigning a chip for a different foundry takes 12–24 months and hundreds of millions of dollars. Cumulative R&D of $100B+ over decades creates compounding advantages virtually impossible to replicate.
Moat Sources: Physics-based barriers ($20B+ per node transition), 30+ years of manufacturing know-how, network effects (more customers → better yields), entire AI ecosystem architecturally dependent on TSMC. 70% global foundry share, 18+ month technology lead.
Owner Earnings
Buffett Scorecard
Score: 10 PASS | 0 FAIL | 2 CAUTION — HOLD/ACCUMULATE
Graham Intrinsic Value
Classification: INTELLIGENT SPECULATION (by price). TSM is one of the finest businesses in the world — a true monopoly with extraordinary economics. At $398.37, the price FAR exceeds Graham's investment value. The buyer is speculating on continued exponential AI-driven growth. Company quality is exceptional (7/12 PASS); price is the sole disqualifier.
10-Year EPS Record
| Year | EPS (ADR) | YoY Growth |
|---|---|---|
| 2017 | $2.24 | +13.7% |
| 2018 | $2.29 | +2.2% |
| 2019 | $2.28 | −0.4% |
| 2020 | $3.51 | +53.9% |
| 2021 | $4.12 | +17.4% |
| 2022 | $6.23 | +51.2% |
| 2023 | $5.36 | −14.0% |
| 2024 | $6.81 | +27.1% |
| 2025 | $10.43 | +53.2% |
Graham Scorecard
Score: 7 PASS | 4 FAIL | 1 CAUTION — INTELLIGENT SPECULATION (price too high vs. historical)
Sowell Economic Assessment
TSMC operates as a natural monopoly with extraordinary pricing power, minimal government distortion exposure, and operates in a market where demand structurally exceeds supply. The price system functions optimally for this company.
Key Sowell Factors
Scarce Resources: Controls the scarcest manufacturing resource in tech. Advanced semiconductor capacity (≤7nm nodes) with no competitor within 18 months. $100B+ cumulative R&D creates compounding advantages impossible to replicate.
Price Signals: Full pass-through working — 64% GPM expanding while input costs rise. ALL competitors face same TSMC pricing. Customers (Apple, NVIDIA) have zero alternatives. Gross margins expanded from 52% to 64% over 5 years DESPITE rising input costs.
Competition: Natural monopoly earned through $100B+ cumulative R&D. If all government protection vanished, TSMC maintains dominance through product superiority. Samsung 18+ months behind. Intel Foundry loss-making. 70% global foundry share.
Government: CHIPS Act net positive (subsidies for US fabs reduce capital burden). 15% US tariff creates modest margin pressure. No subsidy dependency — profits from real market demand. Would be equally profitable without any government intervention.
Systemic Risk: Geopolitical tail only (Taiwan Strait). Probability low (deterrence factors strong). Impact catastrophic if materialized. Mitigating via $265B US expansion. "Silicon Shield" provides deterrence — destroying TSMC would collapse the global technology economy.
Verdict Aggregation
Net: ALCISTA +1.55/2.0 — Heavy factors 3 bullish / 0 bearish | Standard 4 bullish / 1 bearish