TSMC’s 2nm Expansion Accelerates as Sector Selloff Tests Investor Resolve

The world’s largest chip foundry has weathered a turbulent week that saw a sharp sector-wide retreat briefly knock its stock, only to stage a partial recovery as analysts double down on the long-term opportunity from next-generation processing technology. Taiwan Semiconductor Manufacturing Co. closed Friday at €389.50, up 2.23% on the session, after sliding more than 8% earlier in the week on fears that the semiconductor rally had overstretched.

The selloff, which gathered pace midweek, was triggered by a chorus of analyst warnings about a “bubble risk” in the chip sector. On Wednesday the stock plunged 6.9%, followed by another 2.1% decline Thursday to a close of €381.00, before buyers stepped in. The retreat came just a day after TSMC had touched a 52-week high of €420.50, and it coincided with Goldman Sachs’ decision to remove the company from its APAC Conviction List on July 1. The investment bank’s move stood in contrast to the broader Wall Street sentiment: several US houses have recently lifted their price targets for TSMC’s Taiwan-listed shares, with some aiming as high as 3,000 Taiwanese dollars.

Despite the volatility, TSMC remains firmly in positive territory. The stock has gained 42.67% since the start of the year, and on a 12-month basis the advance stands at 90.02%. Friday’s rebound left the shares 7.37% below the recent high, but still 7.30% above their 50-day moving average of €363.01. The 30-day annualized volatility clocked in at 54.33%, while the relative strength index of 50.8 sits squarely in neutral territory — a sign the stock is searching for direction.

Central to the optimism that persists among many analysts is the ramp-up of TSMC’s 2-nanometer process. Demand from high-performance computing and AI infrastructure is expected to generate 45% more output in the first year of 2nm production compared with the current 3nm generation. To meet that demand, TSMC is targeting a monthly capacity of 200,000 wafers for 3nm and 140,000 for 2nm by the end of 2027, while its advanced CoWoS packaging — essential for clients such as Nvidia and Apple — is slated to grow to 280,000 wafers per month. Overall capital expenditure could climb to around $78 billion by 2027.

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The earnings trajectory is heading higher, too. Analysts project earnings per share of 103 Taiwanese dollars in 2026, 136 in 2027 and 175 in 2028, with the gross margin expected to reach 67.3% by the end of that period. The company’s pricing power is also being buttressed by a US policy shift: tax credits for domestic chip manufacturing have been raised to 35%, and TSMC may push through further price increases on its most advanced nodes.

On the operational front, TSMC continues to strengthen its US footprint. Taiwan’s investment regulator approved a $20 billion capital injection for subsidiary TSMC Arizona on July 3 — the sixth such tranche, bringing total authorized US investment to $44 billion. The funds will go toward a new 12-inch wafer fab and an advanced packaging facility, helping to secure supply for the AI boom. At home, the company’s financial strength was underlined by the distribution of roughly 103.1 billion Taiwanese dollars in employee bonuses, made possible by a first-quarter net margin of 50.5%.

All eyes are now on the second-quarter earnings report due in mid-July. Management has guided for revenue in a range of $39 billion to $40.2 billion, with a gross margin between 65.5% and 67.5%. The consensus estimate stands at earnings per share of $3.77 on revenue of about $40.01 billion. Whether those numbers will silence lingering valuation concerns — or reinforce the sector jitters that sent TSMC’s shares into a tailspin this week — will determine the next leg for a stock that remains the bellwether for the entire semiconductor industry.