TSMC, $1 trillion

Taiwan Semiconductor Manufacturing Co. briefly surpassed $1 trillion in market value after Morgan Stanley and other brokerages raised their price targets ahead of the company's earnings report, but fell in subsequent trading.

TSMC ADR shares rose as much as 4.8% after opening in New York on Monday, hitting a record high, and their share price has risen more than 80% this year. The Taiwanese chipmaker surpassed Berkshire Hathaway in early June to become the world's eighth most valuable company, and its ADRs trade at a much higher price than its shares traded in Taipei.

"TSMC's ADR valuation approaching $1 trillion is a feat, but there is still a long way to go as technological advances continue until at least the 2040s," said Phelix Lee, an analyst at Morningstar Inc.

TSMC is the sole supplier of the most important chips for Apple and Nvidia, making it a favorite among global AI investors. As the share prices of these $3 trillion companies continue to rise on the wave of AI, their indispensable chipmakers look like bargains in comparison. Despite the tensions, several Wall Street brokerages have raised their target prices for TSMC, citing the surge in AI-related demand and the possibility of price increases in 2025 to boost earnings.

TSMC’s ADRs have outperformed Taipei shares because they are more easily available to foreign investors. They are also fungible, whereas Taiwan shares require special regulatory approval to convert into U.S. shares.

Monday’s gains came after Morgan Stanley raised its price target on the stock by about 9%, predicting the chipmaker will raise its full-year sales forecast in its earnings report next week. The brokerage also believes that TSMC’s wafer price increase is due to its strong bargaining power.

“TSMC’s ‘hunger marketing’ strategy seems to be working,” Morgan Stanley analyst Charlie Chan wrote in a note on Sunday. “Our latest supply chain checks suggest that TSMC is sending a message that leading-edge foundry supply may be tight in 2025 and customers may not be able to get adequate capacity allocations as they fail to realize TSMC’s value.”

Morgan Stanley raised its price target on Taiwan Semiconductor Manufacturing Co. ( TSM ) to NT$1,080.00 from NT$1,180.00 in a report on Monday , citing strong demand for artificial intelligence (AI) semiconductors.

Morgan Stanley said the focus of TSMC's upcoming second-quarter earnings call should be on "the sustainability of AI semiconductor demand and TSMC wafer pricing trends."

Before the earnings report was released on July 18, Morgan Stanley analysts predicted that TSMC would raise its full-year revenue growth forecast to 25% year-on-year, driven by continued AI demand. They also expected TSMC's third-quarter revenue growth forecast to be raised to 13% quarter-on-quarter.

Morgan Stanley's report noted: Their recent supply chain checks indicate that TSMC is effectively communicating potential supply constraints in 2025, which could result in a 3-4% price increase for smartphone and PC wafers.

Confidence in AI demand is another key factor. Morgan Stanley highlighted that cloud AI customers such as Nvidia will prepay TSMC's advanced CoWoS packaging in 2025, indicating strong customer confidence. Coupled with customer acceptance of higher CoWoS pricing, the investment bank believes that a 20% increase in CoWoS prices is achievable.

Based on these positive developments, they expect TSMC’s upcoming earnings report to meet market expectations and foresee “more optimistic wafer pricing and strong SoIC 3D IC demand” going forward.

JPMorgan analysts, including Gokul Hariharan, also expect the company to raise its revenue guidance on the earnings call.

“We expect TSMC’s demand for AI accelerators to become more constructive,” he wrote in a note on Sunday.

Morgan Stanley and JPMorgan Chase & Co. joined brokerages including Nomura Holdings Inc. and Mizuho Securities Co. in expressing optimism about TSMC’s second-quarter results. The maker of the world’s most advanced chips, which are used by companies including Apple Inc. and Nvidia Corp., expects revenue to grow 36% from a year earlier, the fastest pace since the last quarter of 2022, according to data compiled by Bloomberg. Earnings optimism pushed the company’s Taipei shares above 1,000 New Taiwan dollars (about $31) last week.

MIT and Stanford graduate Morris Chang founded TSMC in 1987 after working in the US tech industry for many years.

At the time, the Taiwanese government was trying to build up a semiconductor industry to compete with countries such as Japan, which led the industry.

In the nearly four decades since, TSMC has become one of the world’s most important companies, a leader in making chips for everything from smartphones to advanced robots.

Morris Chang was born in mainland China in 1931 and retired from TSMC in 2018. At the time, he was highly respected in Taiwan and was often called the "godfather" of Taiwan's chip industry.

Taiwan awarded him one of its highest honors in April.

Thanks to the AI ​​revolution sparked by ChatGPT’s success, TSMC has seen a huge boost in demand for advanced semiconductors needed to train and run AI applications.

The company works closely with AI leader Nvidia, which in June became the world's most valuable public company with a market value of about $3.3 trillion.

TSMC also supplies chips to Nvidia's rivals Qualcomm and AMD, among others, and its chips are reportedly in huge demand, with production orders booked years in advance.

Arguably its most high-profile customer is Apple, which relies on TSMC chips for its latest iPhones and MacBooks.

“We have established a pipeline of technology research to support cutting-edge AI devices, circuits and systems for decades to come,” TSMC said on its website.

TSMC is facing pressure to move its business away from Taiwan and elsewhere.

The company is building two "fabs" - manufacturing plants - in the United States and in April announced plans for a third plant, bringing its total investment in Arizona to $65 billion.

But its U.S. project has hit snags over the past year, which the company blames on a lack of human resources because making chips requires highly specialized skills.

TSMC also opened an $8.6 billion plant in Japan this year - a success story for Japan as it competes with the United States and Europe to lure top chip companies with huge subsidies.

With “strong” support from the Japanese government, TSMC announced it would build a second plant to produce more advanced chips, and the company also plans to build a new plant in Germany - its first in Europe.

Geopolitics aren’t the only concern for TSMC and Taiwan’s chip industry. The island is also prone to natural disasters. It sits on the “Pacific Ring of Fire,” a seismically active belt around the Pacific Ocean that, like neighboring Japan, has a long history of catastrophic earthquakes.

TSMC was one of the companies that halted production in April after a 7.4-magnitude earthquake hit Taiwan, the worst in decades. The company told customers the impact was minimal. According to TSMC's website, TSMC has invested in several earthquake-resistant facilities at its factories to reduce losses and casualties, including an earthquake early warning system.