At today's price, TSMC's stock is pricing in about 28.5% annual free-cash-flow growth for the next ten years. Over the past five years, the company's actual FCF growth averaged 34.2% a year — essentially asking it to keep doing exactly what it's already been doing.
At its current price, TSM implies ~28.5% annual FCF growth for the next 10 years, discounted at 10%.
TSMC's actual 5-year FCF growth has averaged 34.2% a year.
Required growth vs. historical growth
Required growth from the reverse DCF below. Historical CAGRs from 20-F FY2021, FY2023, and FY2025 (USD-converted). Management's guidance: C.C. Wei, Q4 FY2025 earnings call, Jan 15, 2026.
Sensitivity: what if the discount rate or FCF base moves?
| WACC | Required growth (3-yr avg FCF) | Required growth (2025 FCF alone) |
|---|---|---|
| 8% | 23.1% | 18.5% |
| 10% (base case) | 28.5% | 23.7% |
| 12% | 33.3% | 28.2% |
At a lower discount rate (8%), the required rate falls to around 23% — close to the 5-year revenue CAGR (20.7%). At a higher one (12%), it climbs to around 33% — nearly matching the 5-year FCF CAGR (34.2%). The "cheap or expensive" conclusion here depends heavily on a single assumption.
What would move this number
- Switching from a 3-year average FCF ($22.68B) to 2025 alone ($31.96B) lowers the required growth rate from 28.5% to 23.7% at a 10% discount rate. 2023 was a down-cycle year that drags the 3-year average down — so which base you choose flips the read between "the market is asking for less than TSMC's recent pace" and "the market is asking for the same pace."
- TSMC's net cash position (about $55.3B) modestly reduces the required growth rate relative to a company with net debt.
Show your work
Five inputs, sources, model assumptions, and the calculation
- Share price (per ADS)$407.38 — stockanalysis.com, Aug 24, 2026
- Common shares outstanding25,932,524,521 — 20-F FY2025, p.55 (Feb 28, 2026); 1 ADS = 5 common shares (~5,186.5M ADS-equivalent)
- Market cap (calculated)$2.113T (price × ADS-equivalent shares) — note some data providers show ~$1.93T, likely reflecting a different pricing/share-count snapshot
- Free cash flow, USD-converted2023 $9.54B · 2024 $26.54B · 2025 $31.96B; 3-year average $22.68B
- Net debt−$55.3B (net cash) — 20-F FY2025, p.34 and balance sheet
- Discount rate (WACC)10% base case (8% / 12% tested)
Currency conversion: year-end NT$/USD rates used — 2021: 27.74, 2022: 30.73, 2023: 30.62, 2024: 32.79, 2025: 31.37 (Federal Reserve year-end rates).
Why a 3-year average: 2025's FCF is 41% above the 3-year average — beyond the ±40% normalization threshold — so the base case uses the 3-year average, with 2025-alone shown separately for context.
Model: free cash flow is assumed to grow at a constant annual rate g for 10 years, then at a 2.5% terminal rate thereafter, solved by bisection for the value of g that equates present value to today's enterprise value (market cap + net debt).
The fine print
- Change the discount rate, the FCF base, the projection window, or the terminal growth rate, and the answer moves significantly — see the sensitivity table above.
- A reverse DCF shows what the market currently expects — it does not say what the stock is "worth."
- Whether 28.5% annual FCF growth is realistic depends on the AI chip demand cycle, the competitive landscape, and TSMC's execution — not on this math alone.
- Any investment decision, and its outcome, is your own responsibility.
Frequently asked questions
What growth rate does TSM's stock price assume?
At today's price, TSMC's stock is pricing in about 28.5% annual free-cash-flow growth for the next ten years.
How does that compare to TSMC's actual growth?
Over the past five years, TSMC's actual free-cash-flow growth averaged 34.2% a year — above the ~28.5% the current price requires, essentially asking the company to keep doing what it's already been doing.
What share price was used for this analysis?
This analysis used $407.38 per ADS, as of Aug 24, 2026.