(Bloomberg) -- The rapid ascent in Taiwan Semiconductor Manufacturing Co. is making it harder to ignore risks for the world’s largest contract chipmaker, even for its staunchest supporters.

TSMC’s shares surged more than 110% from an October 2022 low through Thursday amid the global investor mania over artificial intelligence, tracking gains in key customer Nvidia Corp. Although AI-related revenue accounted for just 6% of TSMC’s total revenue last year, the market has been pricing in a big jump in that figure on the promise of an explosion in demand.

The stock’s relative strength index has been in overbought territory for much of the past two months, signaling the rally has gone too far, too fast. It’s also surged to its biggest premium on record over the average analyst price target.

Morningstar Inc. analyst Phelix Lee has one of the street’s highest targets, but admits some nervousness over how long AI growth can remain at elevated levels. His estimate of NT$950 implies upside of more than 20%.

“If I look at the order book, I would be a little bit concerned of how sustainable the AI demand is across the time span of three to five years, because you can’t really spend several tens of billions on data centers every single year,” Lee said.

TSMC in January said its AI revenue is growing at 50% annually and should comprise somewhere in the “high-teens” by 2027. The company is building plants in the US, Japan and Germany as it races to supply needs for AI chips used in data centers operated by global powerhouses including Amazon.com Inc. and Microsoft Corp.

Geopolitical concerns cloud the outlook, given Washington-Beijing trade tensions and the possible impact of this year’s US presidential election. Morningstar’s Lee said it’s unclear whether TSMC’s strong order book has been powered mainly by end-demand for AI products or inventory stocking by American clients looking to hedge policy uncertainty.

Read more: TSMC to Win More Than $5 Billion in Grants for US Chip Plant

Another risk is how quickly Apple Inc. — which accounts for more than 20% of the Taiwanese foundry’s sales — can counter the downturn in the smartphone industry and succeed in adding AI features to its devices, according to Kevin Wang, an analyst at Mizuho Securities Asia Ltd.

“For iPhones, indeed we saw the demand actually is getting weaker in China, so that might have some potential risk for their orders,” Wang said.

Despite such worries, both Morningstar and Mizuho remain optimistic about TSMC’s stock, which has 35 buy ratings and just one hold recommendation, with zero sell calls. On Friday, the stock dropped 4%, the most since October 2022.

While debate about overheating continues to track the prolonged global AI rally, analysts seem to agree that valuation is not a concern for TSMC. The stock is trading at 16 times estimated earnings for next year, which is about in line with its five-year median and ranks near the lowest in a gauge of major global chip peers. 

“It’s hard to draw a conclusion that there is a bubble in AI stocks,” said Daniel Liang, a Taipei-based portfolio manager at Cathay Securities Investment Trust, whose fund has TSMC as one of its biggest holdings. “For any company that has more than 10% revenue contribution from AI, a valuation of 30 times to earnings is not demanding to me.”

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(Adds further tech news items, Friday’s trading in TSMC shares.)

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