During the critical development period of AI technology, two top investment banks on Wall Street, Citigroup and JPMorgan, have both raised the target price of Taiwan Semiconductor, a chip manufacturing giant. In the latest research report, Citigroup raised Taiwan Semiconductor's target stock price from the previously predicted NTD 1,030 to NTD 1,150, which is 22% higher than the current stock price, while JPMorgan raised its target price from NTD 900 to NTD 1,080, maintaining an 'overweight' rating. Both investment banks believe that with the rapid development and expanding application of AI technology, Taiwan Semiconductor will benefit from the chip demand of data centers and edge AI, especially in more advanced 2/3-nanometer process nodes.

In the latest research report, Citigroup raised Taiwan Semiconductor's target stock price from the previously predicted NTD 1,030 to NTD 1,150, which is 22% higher than the current stock price, while JPMorgan raised its target price from NTD 900 to NTD 1,080 and maintained an 'overweight' rating. According to both investment banks, with the rapid development and expanding application of AI technology, Taiwan Semiconductor will benefit from the chip demand of data centers and edge AI, especially in more advanced 2/3-nanometer process nodes.

Both investment banks believe that Taiwan Semiconductor will benefit from the chip demand of data centers and edge AI, especially in more advanced 2/3-nanometer process nodes, as AI technology continues to rapidly develop and expand its application.

Citigroup expects that by the end of 2025, most AI GPUs around the world will migrate to the 3-nanometer process, which will bring more orders to Taiwan Semiconductor. Its 3-nanometer process utilization rate is expected to remain tight next year.

Citigroup: AI GPUs will shift to 3nm process on a large scale by the end of next year.

Citigroup pointed out that most AI GPUs currently use 4/5/7-nanometer processes. With the increasing demand for AI PCs and smart phones, the gradual maturity of chip manufacturing technology, it is expected that most of them will migrate to the 3-nanometer process before the end of 2025.

As a leader in advanced semiconductor technology, Taiwan Semiconductor is expected to receive more 3-nanometer chip orders in 2025, especially from customers such as Apple, Qualcomm, and MediaTek. By then, the utilization rate of Taiwan Semiconductor's 3-nanometer process will remain tight.

Taiwan Semiconductor also stated earlier that it expects capital expenditures to be between $28 billion and $32 billion in 2024 and may increase to $35 billion to $40 billion in 2025, mainly for the research and development and production of 2/3-nanometer processes.

Given the bright prospects for cloud computing and edge AI demand, the revenue-generating capabilities of advanced processes are even stronger.

Citigroup expects that the average selling price of advanced processes (3/4/5 nanometers) may rise by 5%-10% by 2025.

In addition, the proportion of revenue from advanced processes in Taiwan Semiconductor's total revenue will reach 53% and 61% in 2024 and 2025, respectively. If chip prices rise by 5-10% in 2025, Taiwan Semiconductor's revenue still has about 3-6% room for growth.

Citigroup's research focuses more on Taiwan Semiconductor's pricing ability and cost escalation transferability, expecting gross margin (GM) to reach 58% in 2025.

JPMorgan pointed out that Taiwan Semiconductor has nearly monopolized the chip market in cloud computing and edge AI, and is expected to account for as much as 35% of total revenue from 2028 (28% from cloud computing+7% from edge AI).

According to the latest technology roadmap, Taiwan Semiconductor plans to update some 5-nanometer process equipment to 3-nanometer in the second half of 2024, although the 5-nanometer process is also facing tight supply.

At the same time, Taiwan Semiconductor plans to further increase the production capacity of CoWoS (Advanced Packaging) in 2025 to meet the strong demand for AI GPUs.

With the increase in chip size, the complexity of 3D IC architecture, and the improvement of yield control, Citigroup predicts that Taiwan Semiconductor's advanced packaging business prices will also rise.

Citigroup and JPMorgan have both raised the target price of Taiwan Semiconductor.

According to earlier media reports, Taiwan Semiconductor may raise the wafer prices of 3-nanometer and 5-nanometer processes. NVIDIA CEO Huang Renxun also stated at Computex that he is willing to pay more fees to Taiwan Semiconductor.

Citigroup expects that with the support of AI chips, Taiwan Semiconductor's year-on-year revenue growth rates in 2025 and 2026 will be 39% and 31%, respectively, and its revenue in 2024 is expected to grow by 29% year-on-year.

Citigroup reiterated its 'buy' rating on Taiwan Semiconductor and raised its target stock price from NTD 1,030 to NTD 1,150, expecting a return on investment of 24.9%.

JPMorgan is also optimistic about the prospects of Taiwan Semiconductor.

The bank believes that Taiwan Semiconductor's dominant position in the AI field, particularly in the accelerating demand for datacenter and edge AI, will significantly boost its profitability.

Specifically, JPMorgan expects that Taiwan Semiconductor's EPS from 2024 to 2026 will be NT$40.74, NT$56.30 and NT$63.65 respectively, which are 3%, 9% and 8% higher than previous estimates.

JPMorgan has raised the target stock price from NT$900 to NT$1080 and maintains an "overweight" rating.