With the global semiconductor market continuing to soar, Taiwan Semiconductor has repeatedly indicated the possibility of raising prices, and market expectations have risen accordingly.

In a recent research report, JPMorgan significantly raised its EPS expectations for the next few years and raised the company's target price from NTD 980 to NTD 1080. The report analyzes that this is mainly based on the accelerated demand for datacenters and AI, especially the price increases of N3 and N5 process technologies, as well as the price increase of advanced packaging technology (CoWoS).$Taiwan Semiconductor (TSM.US)$In a recent research report, JPMorgan significantly raised its EPS expectations for the next few years and raised the company's target price from NTD 980 to NTD 1080. The report analyzes that this is mainly based on the accelerated demand for datacenters and AI, especially the price increases of N3 and N5 process technologies, as well as the price increase of advanced packaging technology (CoWoS).

Citigroup analyst Laura Chen has also raised her target stock price by 12% to 1150 New Taiwan dollars.

As of press time, the stock price of Taiwan Semiconductor is fluctuating between 940.00 NTD and 950.00 NTD, with about 14%-21% upside potential from Morgan and Citigroup's expectations. In the US stock market, Taiwan Semiconductor rose nearly 3% overnight and is up over 1% in after-hours trading.

The price increase will push up gross margin to 50%-60%.

Specifically, JPMorgan raised its earnings per share expectations for Taiwan Semiconductor in 2024, 2025, and 2026 by 3%, 9%, and 8%, respectively.

The report predicts that prices for N3 and N5 process technologies will increase slightly starting in 2025, with growth rates between 1% and 5%, while CoWoS prices will also rise by about 10%.

The report points out that with the optimization of product mix (higher proportion of N3E) and the increase in N3 output, Taiwan Semiconductor's gross margin is expected to increase from the second half of 2025 to the first half of 2026, reaching 50% to 60%.

We believe that with the strengthening of cyclical recovery, there is further room for gross margin to rise, as Taiwan Semiconductor's application in N7 and older process nodes has upward potential.

JPMorgan predicts that Taiwan Semiconductor's EBIT will continue to grow at a compound annual growth rate of 22% after 2024 until 2027. This indicates that Taiwan Semiconductor's operating efficiency and profitability will continue to improve. At that time, free cash flow will also increase significantly.

It is predicted that Taiwan Semiconductor plans to use 70% of its free cash flow to pay cash dividends. It is expected that by 2027, Taiwan Semiconductor's annual cash dividend will reach 35 New Taiwan dollars, with a compound annual growth rate of 36%. This means that the dividend is almost more than twice the expected dividend in 2024.

The field of artificial intelligence will experience strong growth.

Taiwan Semiconductor's advantages will also be reflected in its long-term strategic layout in the field of artificial intelligence.

JPMorgan predicts that by 2028, Taiwan Semiconductor's AI-related revenue is expected to account for 35% of its total revenue, with 28% coming from artificial intelligence demand in data centers and 7% from artificial intelligence demand in edge computing.

The report points out that Taiwan Semiconductor maintains a dominant position in the field of AI chips, especially in design advantages in N3, advanced packaging technology (CoWoS and SoIC), and N2/A16 process nodes, ensuring Taiwan Semiconductor's leading position in this fast-growing market.

JPMorgan's research report emphasizes that Taiwan Semiconductor almost monopolizes the AI accelerator and edge computing chip fields, and with its strong process roadmap (N3 and N2) and industry-leading packaging technology, Taiwan Semiconductor is expected to continue to lead the market in the next few years.

In addition, it is expected that Taiwan Semiconductor will increase capital expenditures in the second half of 2024 and 2025, mainly for investment in N3, advanced packaging technology, and N2 process, with capital expenditures expected to reach about USD 31 billion in 2024 and increase to USD 35 billion in 2025.

The report points out that these investments will further consolidate Taiwan Semiconductor's leading position in the global semiconductor market and support its continued development in emerging technology areas.

Editor/Somer