TSMC is poised to become the next company with a $1 trillion market cap

As Taiwan Semiconductor Manufacturing Company (TSMC) approaches the "trillion club" milestone, Wall Street's major brokerages, including Goldman Sachs and JPMorgan Chase, have revised upwards their target prices for the chipmaker this week. The bullish sentiment stems from the soaring demand for AI-related products and the anticipated price hikes by the company in 2025, both of which are expected to bolster TSMC's profitability.

Goldman Sachs is the most optimistic about TSMC's future, hiking its target price by 19% to NT$1,160. The firm predicts that TSMC's manufacturing prices for 3-nanometer and 5-nanometer chips will increase by "low single-digit percentages."

JPMorgan Chase forecasts that TSMC may raise its revenue outlook for 2024 and potentially increase capital expenditures to the upper end of its guidance range. The bank anticipates that AI will contribute 35% to TSMC's total sales by 2028.

TSMC itself has stated that its capital expenditure is expected to range from US 28 billion to US 32 billion in 2024, potentially increasing to US 35 billion to US 40 billion in 2025. These significant budgets are primarily allocated to the research, development, and production of 2/3-nanometer processes.

Citigroup and Morgan Stanley have also revised upwards their target prices for TSMC. Both investment banks believe that with the rapid development and expanding applications of AI technology, TSMC will benefit from the increased demand for chips in data centers and edge AI, particularly at the more advanced 2/3-nanometer process nodes.

Citigroup predicts that by the end of 2025, most global AI GPUs will migrate to the 3-nanometer process, bringing more orders to TSMC. The utilization rate of TSMC's 3-nanometer process is expected to remain tight next year. TSMC anticipates securing more 3-nanometer chip orders in 2025, particularly from customers such as Apple, Qualcomm, and MediaTek.

Furthermore, a research report released by Morgan Stanley's analyst team led by Charlie Chan on June 5 predicts that TSMC may raise its wafer prices by 5% in 2025 to maintain its gross margin at 53% or higher. The team believes that if NVIDIA accepts the price increase, other key AI customers may also follow suit.

In the midst of the AI wave, TSMC, as a major chip foundry for technology giants, has reaped significant benefits. Goldman Sachs analyst Bruce Lu stated, "With the continuous development of artificial intelligence, we believe TSMC is one of the main beneficiaries."

The surge in AI chip orders has led to robust sales growth for TSMC. In May, the company's sales reached NT229.62billion(approximately US 7.114 billion), representing a year-on-year increase of 30.1%. From January to May this year, TSMC's cumulative sales reached NT1.06trillion(approximately US 32.84 billion), representing a year-on-year increase of 27%.