On July 21, the Financial Times reported that China’s Ministry of Commerce is considering implementing export controls that would bar Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and QUALCOMM Incorporated (NASDAQ:QCOM) from manufacturing chips based on designs from Huawei, Alibaba, and ByteDance. Such headlines are likely to hit a foundry stock hard. In the case of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), however, the Bull case remains strong as always. Here’s the how and why.
The Bull Case
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s Q2 net profit went up 77% year-over-year, reaching a record high of T$706.6 billion ($22 billion). Beating the consensus estimates, the increase marks the ninth straight quarter of double-digit growth. Revenue climbed 36% to NT$1.27 trillion. The company has also raised its full-year 2026 revenue growth guidance above 40% in U.S. dollar terms in addition to lifting the 2026 capex toward $62 billion. With another $100 billion onto its U.S. build-out, the company pushes its total American commitments to $265 billion.
Days later, Reuters and Bloomberg confirmed that Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) has finalized hikes in base prices between 5%-10% across advanced and mature nodes starting in 2027. The company has been the primary chipmaker for two of the largest players in the global tech market: Apple and Nvidia. Such a foundry can’t freely raise prices unless it has leverage that can’t be replaced.
That leverage is technical as well as contractual. Taiwan Semiconductor Manufacturing Company Limited’s (NYSE:TSM) N2 (2nm-class) process uses gate-all-around (GAA) nanosheet transistors, and they are roughly two to three generations ahead of China’s largest semiconductor foundry, SMIC’s 7nm ceiling. While achieving this feat, the company actively phased out Chinese-made equipment from its 2nm production lines to comply with U.S. regulations and relied on suppliers from the U.S., Europe, and Japan for its leading-edge manufacturing.
The Bear Case
At the moment, the Beijing proposal is not finalized. Neither Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), QUALCOMM Incorporated (NASDAQ:QCOM), nor Beijing has confirmed the scope of this proposal, but the signal still matters. In addition to the existing Taiwan Strait risk, where potential military conflict threatens global commerce, China is willing to weaponize the foreign foundries’ access to its AI and semiconductor technologies. On the other hand, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) has a trailing P/E in the range of 27x to 36x that sits above the company’s own ten-year average. Such a decade-high multiple leaves less room for error if the Beijing proposal translates to a policy.
What Insiders and Hedge Funds Are Doing
The signal doesn’t stop there. On July 21, the same day Beijing reported its proposal, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s VP Bor-Zen Tien made a discretionary, open-market purchase of the company’s shares and ADSs outside the company’s scheduled Employee Stock Purchase Plan. The insider purchase, amounting to just $301,350, modestly represents the executive’s interest in the stock’s growth. Meanwhile, the institutional interest in the stock materially reflects the market expectations. Insider Monkey’s database shows 234 hedge funds holding ownership stakes in Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), as of Q1 2026, up from 224 a quarter earlier, with the dollar value of those stakes reaching $39.2 billion. Short interest sits at just 0.57% of float, indicating that very few investors are betting against the stock.
Verdict
Beijing’s proposal is a potential tailwind, and Taiwan Semiconductor Manufacturing Company Limited’s (NYSE:TSM) premium multiple means the market has little patience for one going wrong. But the remaining evidence, including the record earnings, pricing power over the largest customers, a product lead almost without the involvement of China, growing hedge fund conviction, and near-zero short interest, points strongly to a bull case, capable of surviving a headline.
While we acknowledge the risk and potential of TSM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TSM and that has 10,000% upside potential, check out our report about this cheapest AI stock.
READ NEXT: Taiwan Semiconductor (TSM) Stock Is Down Nearly 15% This Month Despite Record AI Demand. Here Is Why
Disclosure: None. Follow Insider Monkey on Google News.
Hedge Fund Resource Center