1 Magnificent Artificial Intelligence (AI) Stock Down 25% to Buy Hand Over Fist Before April 17

Harsh Chauhan, The Motley Fool

Sun, Apr 6, 2025, 7:45 AM 6 min read

Taiwan Semiconductor Manufacturing (NYSE: TSM), popularly known as TSMC, is having a forgettable 2025 so far despite starting the year on a bright note. Shares of the foundry giant have slipped by more than one-third from the 52-week high they achieved on Jan. 24.

TSMC's pullback is a result of the overall negativity in tech stocks on the back of the tariffs imposed by the Trump administration. It is feared that the tariff war will lead to an increase in manufacturing costs for technology companies that make products outside the U.S., bumping up the cost of deploying artificial intelligence (AI) data centers and forcing tech giants to rein in their spending.

Additionally, tariffs are expected to negatively affect the U.S. economy's growth, which explains why there has been an increase in the probability of a recession. All these factors have weighed on TSMC stock this year.

However, a closer look at the company's sales in the first two months of the year suggests that the stock could come out of the rut it is in. Specifically, it won't be surprising to see TSMC stock stepping on the gas once again following the release of its 2025 first-quarter earnings report on April 17.

Let's see why TSMC is poised to deliver stronger-than-expected results and guidance this month.

Taiwan Semiconductor's revenue in the first two months of 2025 increased at an impressive pace of 39% when compared to the first couple of months of last year. At this pace, TSMC seems well on its way to exceeding its revenue guidance for Q1 2025.

When TSMC released its fourth-quarter 2024 results in January this year, the company guided for $25.4 billion in revenue for Q1 at the midpoint of its range. That would translate into a year-over-year increase of 34%, a big improvement over the 13% revenue growth it delivered in the year-ago period. However, Taiwan Semi's growth trajectory for the first two months of the year indicates that it could end up outperforming its own expectations.

Meanwhile, earnings should also grow at a terrific pace, considering that TSMC is expecting a year-over-year jump of 5.5 percentage points in its operating margin. Not surprisingly, analysts are expecting a 49% increase in Q1 earnings from the prior-year period to $2.05 per share, though it could do better than that considering the robust AI chip demand.

TSMC's surging sales can be attributed to the rapidly growing demand for AI chips that are now being deployed in multiple applications ranging from data centers to smartphones to personal computers (PCs) to automotive. Nvidia, which is one of TSMC's top customers, reported recently that it is witnessing an unprecedented demand for its latest generation of Blackwell AI graphics processing units.