"The King of OEM" Taiwan Semiconductor Aims for a Trillion-Dollar Market Value! Just a Matter of Time to Sit on Equal Footing with NVIDIA?

According to the financial news app Zhitong Finance, the stock price of Taiwan Semiconductor Manufacturing Company (TSM.US), known as the "king of chip manufacturing outsourcing" globally, has recently shown a strong upward trend, pushing its total market value closer to the $1 trillion mark. Whether it is the Taiwan-listed shares of TSMC or the American Depositary Receipts (ADR) of TSMC, the rapid rise in prices in the recent period has made it difficult for bargain-hunting investors to find an entry point. The voices of Wall Street analysts bullish on TSMC's stock price are getting louder, with some analysts who are extremely optimistic about TSMC's future market performance even suggesting that TSMC's market value may soon catch up with the $3 trillion market value of Nvidia (NVDA.US).

Calculating based on the American Depositary Receipts (ADR) of TSMC listed in the United States, TSMC's total market value surpassed Warren Buffett's Berkshire Hathaway Inc. last week, becoming the eighth largest listed company in the world. Since the beginning of this year, TSMC's ADR price has surged by an astonishing 73%, bringing its total market value calculated based on ADR trading prices to $932 billion, getting closer to the $1 trillion market value threshold.

The reason why the performance of TSMC's ADR has outperformed its Taiwan-listed shares lies in the fact that international investors find it easier to buy ADRs. TSMC's ADRs are included in heavyweight indices such as the Philadelphia Semiconductor Index, as well as in globally popular semiconductor ETF products like the VanEck Semiconductor ETF and iShares Semiconductor ETF, where they hold significant weight. This means that funds tracking indices like the Philadelphia Semiconductor Index and semiconductor ETFs must continuously buy TSMC's ADRs listed in the United States.

As the undisputed leader in the chip manufacturing industry, TSMC has become the primary beneficiary of the widespread application of artificial intelligence in consumer electronics and the rapid proliferation of generative AI tools like ChatGPT. Its cutting-edge chip manufacturing technology and relatively lower valuation compared to tech giants like Nvidia have made it one of the most favored chip stocks by global investors. The key logic lies in TSMC being the sole foundry for high-performance AI GPUs like Nvidia's H100/H200/GB200, with Nvidia currently ranking as the world's most valuable listed company.

As the "king of global chip manufacturing outsourcing," TSMC is currently at the core of the global artificial intelligence and chip manufacturing boom. As the sole global foundry for Nvidia's AI GPUs, TSMC single-handedly controls Nvidia's production capacity. Nvidia, on the other hand, is the absolute leader in the global AI chip market, holding a market share of 80%-90%

The latest statistical data shows that Taiwan Semiconductor's sales in May increased by a significant 30% year-on-year to 229.6 billion New Taiwan Dollars (approximately 7.1 billion US dollars), mainly driven by the global trend of enterprises deploying artificial intelligence technology and the recovery trend in demand for consumer electronics products such as PCs and smartphones.

Looking at a broader time frame, Taiwan Semiconductor's total sales from January to May 2024 reached a staggering 1.058 trillion New Taiwan Dollars, representing a substantial 27.2% growth compared to the strong sales in the same period of 2023. Since 2024, various AI applications like ChatGPT and Sora have experienced explosive growth, driving the global AI data center construction boom and stimulating a sharp increase in demand for server AI chips such as NVIDIA's AI GPUs.

Furthermore, according to media reports, Taiwan Semiconductor's 3nm chip manufacturing prices may increase by more than 5%, while the annual price increase for Taiwan Semiconductor's advanced chiplet packaging is expected to be between 10% and 20%. At the shareholders' meeting on June 4th, the new Chairman and CEO of Taiwan Semiconductor, Wei Zhejia, clearly indicated the company's intention to raise prices. Wei Zhejia also revealed at the June 4th shareholders' meeting that almost all AI chips on the market are manufactured by Taiwan Semiconductor.

With top-notch chip manufacturing technology and "chiplet" packaging expertise, Taiwan Semiconductor is poised to benefit from the AI boom

As global corporations invest heavily in building AI data centers, leading to a surge in demand for AI chips, Taiwan Semiconductor, based in Taiwan, has been able to maintain high profit margins due to its unique manufacturing position in the sub-5nm high-end process field, especially in the currently popular 3nm domain, and its industry-leading Chiplet advanced packaging technology.

Against the backdrop of surging demand for AI chips, Taiwan Semiconductor, as the sole foundry for global AI chip leaders like NVIDIA and AMD, as well as the sole foundry for self-developed AI chips by cloud giants like Microsoft and Amazon, is poised to continue benefiting. With its top-notch chip manufacturing technology and cutting-edge Chiplet advanced packaging, Taiwan Semiconductor, the king of foundries, may be entering the "NVIDIA moment" - a moment when stock price and performance synchronize in significant growth.

Taiwan Semiconductor remains the core chip manufacturer for Fabless chip design companies such as Apple, NVIDIA, AMD, and Broadcom, especially for the data center server-side AI chips manufactured for NVIDIA and AMD. These chips are considered crucial hardware infrastructure for driving large-scale artificial intelligence training/inference systems behind tools like ChatGPT. Taiwan Semiconductor, unmatched.

Taiwan Semiconductor, with decades of chip manufacturing technology accumulation in the field of chip manufacturing, and long been at the forefront of chip manufacturing technology improvement and innovation globally (ushering in the FinFET era, leading the 2nm GAA era), with advanced processes and packaging technologies that lead global chip manufacturers, and has long dominated the vast majority of global chip foundry orders, especially for 5nm and below advanced process chip foundry orders. According to Wall Street analysts' expectations, starting from the second half of 2024, driven by the demand for NVIDIA's GB200 and AMD's new MI325 series, the 3nm and below advanced processes will continue to bring huge revenue contributions to Taiwan Semiconductor. The price increase of 3nm and below processes and advanced packaging foundry services from next year onwards will help accelerate revenue growth in 2025 and the following years.

Research firm Gartner predicts that the development of generative AI and LLM will comprehensively drive the deployment of high-performance servers based on AI chips in data centers. The organization expects the global AI chip total revenue to reach approximately $71 billion in 2024, a significant increase of 33% from 2023, and is expected to reach $92 billion in 2025. Citigroup, a major Wall Street bank, predicts that AMD's flagship AI chip MI300X will capture about 10% market share in 2024, with Taiwan Semiconductor also being the exclusive chip foundry for AMD. All of these demonstrate the unparalleled importance of Taiwan Semiconductor in providing foundry services to top chip companies.

What's more, Taiwan Semiconductor currently dominates almost all high-end chip packaging orders for 5nm and below processes with its leading 2.5D/3D chiplet advanced packaging in the industry, and the advanced packaging capacity is far from meeting the demand. NVIDIA's H100/H200 are in short supply, mainly due to the limitations of Taiwan Semiconductor's 2.5D level CoWoS packaging capacity. Media reports have revealed that due to the massive orders for NVIDIA's H100/H200 and B200/GB200, as well as the high demand for AMD's MI300 series and Broadcom Ethernet chips, Microsoft and Meta's self-developed AI chip orders, the chiplet advanced packaging capacity based on Taiwan Semiconductor's 3nm, 4nm, and 5nm processes is fully loaded.

The latest research from Markets And Markets shows that the total market size of chiplets advanced packaging products covering GPUs, CPUs, FPGAs, and advanced packaging technologies (2.5D/3D, SiP, WLCSP, FCBGA, and Fan-Out, etc.) is expected to reach approximately $148 billion by 2028 The compound annual growth rate (CAGR) is an astonishing 86.7%. According to calculations by the institution, the total market size of the Chiplet market in 2023 may be only $6.5 billion.

Goldman Sachs and other Wall Street giants are extremely bullish on Taiwan Semiconductor's future market trends

Top Wall Street investment banks have raised their target stock prices for Taiwan Semiconductor this week, with the core logic focusing on the surge in demand for AI chips brought about by artificial intelligence, as well as the significant increase in prices for advanced 3nm process and advanced packaging foundry services that may lead to substantial boosts in the company's performance and valuation by 2025. Among them, Goldman Sachs has significantly raised the 12-month target price for Taiwan Semiconductor's Taiwan-listed shares by 19% to NT$1160 (closing at NT$981 on Wednesday). Citigroup expects that supported by incredibly strong demand for AI chips, Taiwan Semiconductor's revenue growth rates in 2025 and 2026 could reach 39% and 31% year-on-year, with a potential 29% year-on-year growth in 2024.

In the eyes of some analysts who are extremely optimistic about Taiwan Semiconductor's future market trends, the total market value of Taiwan Semiconductor, which is single-handedly holding back NVIDIA's production capacity, may eventually reach the current market value of NVIDIA, which is as high as $3 trillion. In terms of U.S. ADRs, the well-known Wall Street institution Susquehanna has significantly raised its price expectations for Taiwan Semiconductor's ADR to $200, implying a nearly 12% increase for the continuously hitting new highs Taiwan Semiconductor ADR.

Analysts from another Wall Street giant, Morgan Stanley, have raised the institution's revenue expectations for Taiwan Semiconductor's AI-related revenue to 35% of the total revenue scale by 2028. Morgan Stanley points out that Taiwan Semiconductor holds an almost unassailable position in chip manufacturing for cloud computing and edge AI, and expects that by 2028, AI-related revenue will account for approximately 35% of total revenue (cloud service AI 28% + edge AI 7%). Morgan Stanley has raised Taiwan Semiconductor's target price from NT$900 to NT$1080 and maintains an "overweight" rating.

In the latest research report, Citigroup, another Wall Street giant, has raised Taiwan Semiconductor's target stock price from the previous prediction of NT$1030 to NT$1150, well above the current Taiwan Semiconductor stock price. Citigroup predicts that with the rapid development and expanding application scope of AI large model technology, Taiwan Semiconductor will fully benefit from the strong demand for chips in data centers and edge AI, especially in more advanced 3nm and 2nm or below chip manufacturing processes Citigroup expects that by the end of 2025, most global server AI accelerators, including NVIDIA's new AI GPUs, will migrate to the 3nm process, with some even considering Taiwan Semiconductor's more expensive 2nm or 1.8nm processes. This will bring larger orders to Taiwan Semiconductor, with the 3nm chip manufacturing process expected to remain in short supply at least until 2025. Citigroup also forecasts that the average foundry price for Taiwan Semiconductor's advanced manufacturing processes (i.e., below 5nm) may increase by 5%-10% in 2025.

Analysts at Goldman Sachs predict that the prices of Taiwan Semiconductor's 3nm and 5nm chip manufacturing will increase by "single-digit percentages," and have raised their 12-month target price by 19% to 1160 New Taiwan Dollars. Goldman analysts, including Bruce Lu, wrote in a report on Tuesday, "We now see Taiwan Semiconductor's risk-return profile as very attractive amid the increasingly positive sentiment around artificial intelligence." "As artificial intelligence applications continue to proliferate, we believe Taiwan Semiconductor is one of the most core beneficiaries."