There’s a difference between finding a company I want to own and finding the right time to pay attention to its stock.
This week, those two things are starting to come together.
My Top Pick of the Week is Taiwan Semiconductor Manufacturing Company TSM 0.00%↑ .
TSM has been on my radar because I believe the stock is undervalued.
Based on Morningstar’s rating, they estimate fair value around $534 per share, compared with TSM trading around $439 on my chart, but valuation isn’t what pushed TSM to the top of my list this week.
→ Price did.
Technology XLK 0.00%↑ has been improving. Semiconductors SOXX 0.00%↑ just broke out and now TSM has confirmed a breakout of its own.
That gives us something I always want to see:
→ The business, valuation, sector, industry, and chart are starting to point in the same direction.
Let’s break down why.
Here’s the setup →
First: What Does TSMC Actually Do?
Before I invest in a company, I want to understand how it makes money.
TSM is the world’s largest dedicated semiconductor foundry.
Instead of primarily designing chips under its own brand, TSM manufactures semiconductors designed by its customers.
→ That distinction matters.
In 2025, TSM manufactured 12,682 different products for 534 customers, serving markets including high-performance computing, smartphones, automotive, internet of things(IoT), and consumer electronics.
Advanced technologies, 7 nanometers and smaller, accounted for 74% of total wafer revenue.
Think about what that means.
→ There are companies competing to design the next generation of processors.
TSM helps manufacture them and that puts the company directly in the path of one of the biggest technology trends I’m watching: Artificial intelligence.
Is TSM Actually An AI Investment?
Yes, but I think calling TSM an “AI stock” actually undersells the story.
→ TSM is part of the infrastructure underneath AI.
AI requires enormous amounts of computing power. That means increasingly advanced processors. Those processors require leading-edge semiconductor manufacturing and TSM is one of the companies making that possible.
The company is also investing heavily in advanced packaging and 3D chip-stacking technologies such as CoWoS, InFO, and SoIC, which help connect increasingly complex chips while addressing power and performance demands Ad management isn’t being shy about what it sees coming.
TSM entered 2026 expecting AI-related demand to remain robust.
Earlier this year, management was guiding for AI accelerator revenue to grow at a mid-to-high 50% compound annual growth rate through 2029.
By the July earnings call, management said the AI opportunity was coming in even stronger than its previous expectations.
That gets my attention because I don’t have to predict which AI application becomes the next household name to understand something much simpler:
→ More AI requires more computing. More computing requires more advanced chips. Someone has to manufacture them.
TSM sits right in the middle of that chain.
Why Invest in TSM Now?
Being positioned in front of a major trend is nice.
Making money from it is better and TSM’s financial results are showing that demand in the numbers.
In 2025:
Revenue reached $122.42 billion, up 35.9%.
Net income reached $55.21 billion, up 51.2%.
Gross margin increased from 56.1% to 59.9%.
Operating margin increased from 45.7% to 50.8%.
And the growth hasn’t stopped in 2026.
Through July, TSM reported NT$2.872 trillion in cumulative revenue, up 37% year over year. July alone grew 44.7% from the prior year.
So I’m not looking at AI hype and trying to manufacture an investment thesis around it.
The growth is already showing up in the business.
Then we add valuation.
My fair-value estimate for TSM is approximately $534, while the stock is currently around $439 on my chart.
Does that mean the stock has to go to $534?
Nope. Fair value isn’t a promise.
→ It’s a reference point that helps me ask whether the price I’m paying makes sense relative to what I believe the business is worth and right now, my valuation tells me TSM remains undervalued while the technical picture is improving.
That’s where things get interesting.
The Top-Down Setup
This is probably my favorite part of the trade.
I don’t want to look at a stock in isolation.
I want to know what’s happening around it.
And this week, TSM gives us a clean example of my top-down process:
Market → Sector → Industry → Stock
The Nasdaq-100 QQQ 0.00%↑ has moved back above its 20-day SMA.
Technology XLK 0.00%↑ has also broken above and closed above its 20-day SMA.
Then we go one level deeper.
Semiconductors SOXX 0.00%↑ have broken out.
And finally, TSM has confirmed its own breakout.
That’s a very different setup from buying a stock simply because it looks cheap.
We’re seeing strength move down the chain and THAT is confirmation I can work with.
TSM chart markup →
What The TSM Chart Is Telling Me
TSM closed around $439 on the chart I’m using.
Price is above the 20-day, 50-day, and 200-day SMAs, with the shorter-term moving averages beginning to turn higher.
Momentum is improving too.
The MACD histogram has moved positive, TSI has turned higher, and RSI has climbed to roughly 62.
That last one matters.
TSM has momentum behind the breakout, but it hasn’t reached my 70+ RSI area yet.
If it does?
My thinking changes.
I’m not looking at an extreme-high RSI reading and thinking:
BUY MORE.
I’m thinking about locking in some profits.
There’s also an obvious area overhead that I’m watching: TSM’s previous highs around the upper-$460s to roughly $470.
That’s where the chart gets another test.
Can TSM push through that area?
Does it consolidate underneath it?
Or does the breakout fail?
Price gets to answer that question. I don’t.
In other words:
→ this is an amazing buy & hold opportunity to pick up shares of TSM, an undervalued / semiconductor dividend-paying stock to hold for the long-term, if not forever.
→ we can also position trade TSM back to true value and beyond and make massive gains.
→ we can take a 2x leveraged swing trade in TSMX for quicker price movements, cheaper share prices, smaller position sizes, and amplified gains (and, losses).
→ if you’re an experienced, astute trader, you can write option contracts on TSM and do what you do and make exponential gains.
The Bigger Lesson: Confirmation Has A Price
Here’s something newer investors sometimes struggle with:
Waiting for confirmation can mean paying a higher price.
That’s okay. I’m not trying to buy the exact bottom.
I’m trying to find the point where the evidence becomes strong enough that I’m willing to put capital behind the thesis.
Think about our RDDT setup from the last Top Pick.
I liked RDDT’S fundamentals. I liked the valuation and I liked where the stock was beginning to set up, but it was still below its 200-day SMA.
The business had my attention. The chart still had something to prove.
TSM gives us the other side of that lesson.
The business is growing.
I believe the valuation is attractive.
The semiconductor industry is strengthening and now the stock is breaking out.
Would buying TSM earlier have given me a cheaper entry?
Sure, but today I have more information.
Sometimes paying a little more for confirmation is the trade-off for having more evidence that your thesis is working.
That’s not chasing. That’s waiting for the market to show its hand.
What About TSMX?
There’s another way experienced traders may choose to trade the TSM setup.
TSMX provides leveraged exposure tied to the daily performance of TSM.
However, this is where I want to draw a VERY thick line between the investment thesis and the vehicle used to trade it.
My thesis is about TSM.
→ Choosing leverage is an entirely separate risk decision.
Leveraged ETFs reset their exposure daily, which means their performance over periods longer than one trading day can differ significantly from simply taking the underlying stock’s return and multiplying it by the stated leverage.
That can work for you. It can also work against you.
Fast.
So TSMX isn’t simply “TSM with more upside.”
It’s a different trade with different risk.
→ For experienced traders who understand leverage, daily resets, compounding, position sizing, and risk management, it can provide another vehicle for expressing a TSM trade.
For everyone else?
You don’t need leverage to have a thesis.
What Could Go Wrong?
Now for the part that doesn’t fit neatly into the AI bull story.
TSM has real risks.
The semiconductor business is highly capital intensive.
The company is spending heavily to expand leading-edge manufacturing and advanced packaging capacity, including new facilities outside Taiwan.
There is also semiconductor cyclicality, customer concentration, export restrictions, competition, execution risk around new manufacturing technologies, and the obvious geopolitical risk surrounding Taiwan, and then there’s AI itself.
The market is placing enormous expectations on AI-related spending.
If those expectations come down, semiconductor companies exposed to that buildout won’t magically get a hall pass.
That’s why I don’t marry the narrative.
I watch the evidence.
What Would Change My Mind?
The first thing I’m watching is whether TSM’s breakout holds.
A breakout that immediately fails and falls back into the previous range tells me something.
So does deterioration in SOXX.
If semiconductor strength disappears while TSM starts losing its short-term moving averages, I’m going to reassess the setup because liking the company doesn’t give me permission to ignore what price is telling me.
The thesis doesn’t get to overrule the chart.
Bottom Line
TSM is my Top Pick of the Week because I see several pieces coming together at the same time.
→ The company is growing.
AI and high-performance computing are creating significant demand for the advanced manufacturing and packaging technologies TSM provides. R
evenue continues to grow rapidly. My valuation still puts fair value around $534.
And now?
The chart is confirming the story.
Technology (XLK) has improved.
Semiconductors (SOXX) have broken out.
TSM has broken out with them.
That’s what takes TSM from a company I like to a stock I want to pay closer attention to right now.
However. the bigger lesson isn’t about TSM.
→ It’s about process.
Fundamentals tell me what I want to own.
Technical analysis helps me decide when.
And top-down analysis helps me see whether the market around the stock is supporting the move.
I don’t need to predict the exact bottom and I don’t need to chase the exact top.
I need enough evidence to make a decision and enough discipline to change that decision when the evidence changes.
Know the Big Picture. Focus on the Edge. 👑
Following a systematic approach, reading market structure, and staying disciplined compounds over time.
Let me know what you’re watching and thank you so much for reading! 🙌
-Nurse Jess 🤝
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Financial Disclaimer: This is not financial advice. All trades carry risk. Biotech stocks are highly volatile and speculative. Always do your own due diligence and consult with a financial advisor before making investment decisions.
The part of this TSM setup I keep coming back to:
Sometimes confirmation costs you a better entry—and that’s okay.
Could I have bought TSM cheaper? Yep.
But now I have more information. Semiconductors have broken out. TSM has confirmed its own breakout. And the technical picture is starting to support what I already liked fundamentally.
I’m willing to give up a little potential upside in exchange for more evidence that the setup is working.
What about you: would you rather buy earlier at a better price, or wait and pay more for confirmation? 👑