Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM, referred to as "TSMC") is one of the most watched artificial intelligence (AI) stocks this week. On October 16, Needham analyst Charles Shi raised the stock's target price from $270.00 to $360.00 while maintaining a "Buy" rating. This rating is supported by TSMC's strong performance in the third quarter.

TSMC's third-quarter revenue exceeded the upper limit of its guidance range. Moreover, despite prior market concerns regarding exchange rate impacts potentially harming profit margins, the company achieved a robust gross margin of 59.5%.

For the fourth quarter, TSMC projects only a 1% quarter-over-quarter revenue decline, significantly better than the previously implied 10% drop, while maintaining gross margins around 60%. The management also revised its full-year revenue growth expectation for 2025 upward from 30% to 35%, and narrowed capital expenditure guidance from a range of $38 billion to $42 billion down to $40 billion to $42 billion.

Analysts highlight that TSMC's AI business prospects are gradually improving. The firm further noted that construction of TSMC's facility in Arizona, USA, is accelerating, with plans to acquire more land, expand the application of the N2 process node, and initially entrust Amkor Technology to provide packaging services for the wafers produced at the Arizona facility.

Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) primarily designs, produces, and sells advanced chips for AI applications.

While we recognize TSMC's potential as an investment target, we believe that some AI stocks have greater upside potential and lower downside risk. If you are looking for significantly undervalued AI stocks that could benefit from tariffs policies from the Trump era and domestic manufacturing trends, please refer to our free report for recommendations on the best short-term AI stock plays.