Analysts from Morgan Stanley have expressed optimism about the future of Taiwan Semiconductor Manufacturing Co (TSMC), projecting a brighter revenue outlook due to the rising demand for artificial intelligence (AI)-capable processors. As a result, TSMC’s price target has been escalated from T$860.0 to T$928.0. These financial experts maintain a confident overweight stance on TSMC’s shares.
TSMC, renowned for fabricating nearly all Arm-based processors globally, stands to benefit significantly as these specific chips are becoming increasingly vital in AI advancements. The prevalence of AI technology is expected to lead to a surge in the need for these processors. Further adding to TSMC’s prospects is their sophisticated Chip on Wafer on Substrate (CoWoS) technology, which is anticipated to play a crucial role in the development of future AI chips.
Morgan Stanley’s forecasts show that TSMC’s share in the global CPU foundry market might rise dramatically, potentially owning nearly 60% of the market by 2028, up from 37% in 2023. The growth in AI chip manufacturing for prominent tech corporations, including Microsoft, Alphabet, Apple, and AI specialist NVIDIA is likely to generate additional revenue for TSMC, as these companies frequently outsource foundry work for their bespoke AI processors to the Taiwanese giant.
While TSMC’s first-quarter earnings were bolstered by the increased demand for AI chips, the semiconductor manufacturer cautioned stakeholders about potential risks. They highlighted that the AI demand might not completely counteract the potential decrease in overall chip demand, particularly with current trends showing a slump in the global PC and smartphone markets.
Key Questions and Answers:
Q: Why is Morgan Stanley optimistic about TSMC’s future?
A: Morgan Stanley is optimistic about TSMC’s future due to an anticipated increase in demand for AI-capable processors, which are expected to drive up TSMC’s revenues. TSMC’s market share in the global CPU foundry market is also projected to rise significantly over the next few years.
Q: What technology of TSMC is set to play a key role in AI chip development?
A: TSMC’s sophisticated Chip on Wafer on Substrate (CoWoS) technology is expected to be pivotal in the development of future AI chips.
Q: What potential risks has TSMC cautioned its stakeholders about?
A: TSMC has warned stakeholders about the risk that the increased demand for AI chips may not fully compensate for a possible decline in the broader chip demand, especially given the current downturn in the global PC and smartphone markets.
Key Challenges and Controversies:
– Supply Chain and Geopolitical Risks: TSMC, being situated in Taiwan, which has geopolitical tensions with China, could face supply chain risks that might affect its operations and growth.
– Technological Evolution: The rapid pace of technological change in the semiconductor industry requires constant innovation and investment in new technologies, which is a significant challenge for manufacturers like TSMC.
– Competition: There is intense competition within the foundry market from other companies such as Samsung and Intel, which are also investing in advanced manufacturing processes.
Advantages:
– Market Leadership: TSMC is the world leader in semiconductor manufacturing, which provides it with a large and diverse customer base.
– Advanced Technology: TSMC’s advanced technologies like CoWoS give it a competitive edge in the production of complex AI and other high-performance chips.
– Economies of Scale: TSMC’s large-scale operations allow it to spread costs and risks across a larger volume of production.
Disadvantages:
– High Capital Expenditure: Maintaining technological leadership requires enormous capital investments, which can impact profit margins.
– Dependence on a Few Large Customers: A significant portion of TSMC’s revenue comes from a small number of large customers, which could pose risks if any customer shifts its strategy or encounters business challenges.
For those seeking further information about TSMC, the company’s official website can be reached through this link. Please note that due to continuous updates in the semiconductor industry and financial markets, the provided link is subject to change and should be accessed directly for the most current information.