Taiwan Semiconductor's performance and guidance both exceeded expectations, Morgan Stanley remains bullish

According to Zhitong Finance APP, on April 16, 2026, Morgan Stanley released the latest financial report interpretation for Taiwan Semiconductor (TSM.US), maintaining an overweight rating with a target price of NT$2,288, indicating a 10% upside potential from the current price. They are clearly optimistic about Taiwan Semiconductor's core position in the AI chip foundry sector, believing that the first-quarter performance and second-quarter guidance have significantly exceeded expectations, further reinforcing the long-term investment logic.

The most critical highlight of this financial report is the upward revision of both performance and guidance. The latest financial results from Taiwan Semiconductor show that net profit in the first quarter skyrocketed by 58% to NT$572.5 billion (approximately US$18 billion), significantly surpassing analysts' average expectation of NT$542.4 billion, which has been continuously revised upward by analysts since February.

The guidance provided by Taiwan Semiconductor's management also overwhelmingly beats the recently revised market average expectations. The company expects total revenue growth to exceed 30% this year, higher than the previous expectation of below 30% and the general market expectation of 25%-28%. The executives also stated that due to the strong demand for AI chips and advanced packaging, capital expenditure will approach the upper limit of the previous forecast range (up to US$56 billion), emphasizing that capital expenditure over the next three years will be significantly higher than in the past three years, indicating their confidence in future growth prospects.

Taiwan Semiconductor's gross margin for the first quarter of 2026 reached 66.2%, significantly higher than Morgan Stanley's expectation of 64.2%. The second-quarter revenue guidance indicates a quarter-on-quarter growth of 10%, better than the market's consensus expectation of 5%-10%, and the median gross margin guidance of 66.5% also exceeds institutional forecasts.

Despite the weakness in the PC and smartphone terminal markets and uncertainties in the macro environment, the demand for AI-related chips remains strong, becoming the core support for Taiwan Semiconductor's performance. Morgan Stanley has raised Taiwan Semiconductor's full-year revenue growth rate for 2026 to over 30% year-on-year, close to the previously predicted 35%, validating the high prosperity of the AI sector.

In terms of capital expenditure, driven by strong demand for 3nm process AI chips and HBM base chips, Taiwan Semiconductor has raised its 2026 capital expenditure to the upper limit of the US$52-56 billion range. Although they did not provide the market's expected three-year US$200 billion plan, management clearly stated that future capital expenditure will continue to increase and that they will work closely with equipment manufacturers like ASML to ensure capacity expansion. Morgan Stanley believes this adjustment reflects Taiwan Semiconductor's confidence in the long-term demand for AI chips, with advanced process capacity remaining tight.

In terms of competitive landscape, Morgan Stanley emphasized that the barriers to advanced processes at Taiwan Semiconductor are difficult to overcome. New entrants like Powerchip Semiconductor Manufacturing Corporation have no shortcuts to take; advanced foundry technology requires years of accumulation, and the construction of new wafer fabs takes 2-3 years. In the face of competition from Intel's EMIB packaging technology, Taiwan Semiconductor adopts a strategy of openness and adherence: on one hand, it opens computing chiplets to third-party packaging to expand the AI semiconductor market, while on the other hand, it insists on providing CoWoS packaging solutions at reasonable costs, not abandoning core values and consolidating its leading advantage in advanced packaging.

In terms of valuation and profitability, Morgan Stanley has raised Taiwan Semiconductor's EPS for 2026-2027 to NT$95.60 and NT$116.57, with a price-to-earnings ratio of 21.8 times for 2026, making the valuation attractive. The report concludes that Taiwan Semiconductor's first-quarter performance and second-quarter guidance align with the most optimistic scenario assumptions, expecting the stock price to rise by 3%-5% in the short term In terms of risks, the upside catalysts come from AI demand exceeding expectations, maintaining a high market share in advanced processes, and increased outsourcing of Intel CPUs; downside risks include industry inventory adjustments in 2026, weakening demand for advanced processes, and rising costs for overseas manufacturers. Overall, Morgan Stanley believes that TSMC, driven by both AI chips and advanced processes, has strong earnings certainty, solid competitive barriers, and remains a core preferred target in the semiconductor sector