TSMC Set for Rapid Growth Amid AI Boom: Bernstein Projects 30% EPS Increase by 2025
In the ever-evolving landscape of technology, Taiwan Semiconductor Manufacturing (TSMC) stands as a colossus, poised to ride the wave of the AI revolution. As the world's largest chip manufacturer and a pivotal player in the current AI boom, TSMC is set for substantial growth, according to Bernstein analysts.
Remarkable Revenue and EPS Projections
Bernstein's forecast paints a rosy picture for TSMC’s financial future. The investment firm anticipates a robust 26% increase in revenue and a 29% surge in earnings per share (EPS) for this year alone. This momentum is expected to persist, carrying well into 2025 and beyond. The driving forces behind this growth are the insatiable demand for data center AI and high-end smartphones, leveraging TSMC's cutting-edge N3 and N4/5 nodes.
Full Capacity Utilization and Advanced Packaging
TSMC’s advanced nodes are currently operating at full capacity, a trend expected to continue until at least 2025. While older nodes are seeing a slower recovery, TSMC's advanced CoWoS (Chip on Wafer on Substrate) service is experiencing rapid growth, significantly boosting advanced packaging revenue. Coupled with a favorable foreign exchange environment, these factors are predicted to propel TSMC’s revenue growth in Taiwan dollars to an impressive 30% for the year.
Projections for 2025 and 2026
Bernstein analysts project that TSMC's rapid growth will extend into 2025 and 2026. EPS is expected to rise by 30% in 2025 and by another 19% in 2026. The continuous expansion in data center AI demand, alongside Intel’s increasing reliance on TSMC for outsourcing, will fuel this growth. Notably, TSMC’s N3 and N4/5 nodes are set for a price increase of 5-10% starting early 2025, further enhancing revenue.
Margin and Utilization Insights
Bernstein highlights that margins are set to improve year-over-year. The utilization of older nodes will support a gradual recovery, and the margin drag from N3 will be lighter. However, the analysts remain cognizant of a 2-3% margin dilution from overseas fabs, anticipating only a modest margin increase.
Potential Headwinds and Mitigating Factors
Looking towards 2026, a potential headwind could be Intel reducing outsourcing at Panther Lake. However, Bernstein believes that AMD and Arm-based CPUs from Qualcomm and MediaTek will continue to capitalize on TSMC's superior technology, thereby offsetting any potential impacts and gaining market share from Intel.
Early Adoption of N2 Technology
AMD’s early adoption of N2 technology is expected to further boost its performance, with less margin drag compared to N3. Bernstein projects TSMC’s revenue and EPS to grow by 24% and 30% in 2025, respectively. Although growth may decelerate in 2026, it is still expected to achieve a commendable 15% in revenue and a 19% increase in EPS.
Investment Outlook
Bernstein maintains an Outperform rating on TSMC, emphasizing the stock’s attractive valuation, especially given its resilience in a potential recession. “We don’t expect a recession, but TSMC’s technologies and market share gains will help it weather one better,” analysts noted.
Bernstein has set a price target of NT$1,185 on TSMC shares, reflecting a 24% upside, including a 2% dividend yield.
Analysis for the Everyday Investor
What Does This Mean for You?
If you're someone who doesn’t follow the financial markets closely, here’s a simple breakdown:
- Strong Financial Growth: TSMC is expected to grow significantly over the next few years, meaning the company is likely to make a lot more money.
- High Demand: The increasing need for advanced technology in data centers and smartphones is driving this growth.
- Stock Outlook: TSMC's stock is considered a good investment by experts, with an anticipated rise in value.
- Resilience: Even if the economy faces challenges, TSMC is well-positioned to handle them better than many other companies.
How Can This Affect Your Finances?
Investing in TSMC could potentially yield good returns due to its expected growth. If you own shares or are considering buying them, this news suggests that TSMC could be a strong addition to your investment portfolio. Always consider consulting with a financial advisor to tailor investment decisions to your personal financial situation.
In summary, TSMC’s advancements and strategic positioning in the tech industry make it a promising prospect for both its future growth and potential investment returns.