All AI roads lead here: TSMC stock target raised as analysts see more upside

Last month, analysts at Bank of America said they see Taiwan Semiconductor Manufacturing (NYSE:TSM) as “a key enabler of AI with long-lasting leadership,” lifting their price target on the stock by $120. This bullish stance on the semiconductor contract manufacturer is broadly shared on Wall Street, with TSMC stock witnessing a series of price objective hikes and optimistic comments recently.

All AI roads lead here

Known for producing chips for some of the world’s leading AI processors, TSMC saw its shares surge more than 33% and 36% in Taipei and the US year-to-date, respectively.

In March, JPMorgan analysts labeled the chipmaker as a critical player “for almost all AI processing at the data center and the edge.”

The investment bank forecasts that TSMC will maintain a dominant position in the AI processor market, holding over 90% of the market share in the next three to four years. They also anticipate that TSMC's revenue from AI will grow from 6% in 2023 to 27% by 2027.

These top line growth projections are mainly attributed to significant advancements in Taiwan Semi’s high-performance computing (HPC), increased in-sourcing by system companies, and a robust pipeline for its N3 technology in 2024 and 2025. Moreover, the launch of N2 technology is expected in 2026.

"We expect Intel (NASDAQ:INTC) to account for ~ 2-3% of revenues for TSMC in 2024, rising to 7-9% in 2025," said JPMorgan analysts in a note last month.

Analysts boost price targets on TSMC stock

Wall Street’s bullish adjustments on TSMC stock continued in more recent weeks as well, with Susquehanna and Barclays analysts also hiking their 12-month target prices.

A Susquehanna analyst lifted earnings estimates and the price objective on semiconductor marker’s US-listed shares from $160 to $180 on Tuesday, implying nearly 30% upside from the latest closing price.

“We are increasing CY24/25 EPS estimates as recent checks suggest blended ASPs tracking better than expected,” the analyst said.

Sharing this bullish sentiment is also Lynx Equity Strategies, whose team of analysts just raised the price target on Taipei-listed TSMC stock to NT$900 from the NT$750 set a few months back.

“After the previous earnings report wrote management was perhaps being conservative in annual guidance of revenue up low-mid 20s, their conservatism, in our view, due to uncertainty in the timing of new customers later in the year,” Lynx analysts wrote.

“With a quarter now behind us, we expect the Company to have gained more visibility into the rest of the year. We expect upside to our unchanged estimate of annual revenue up 27% vs. consensus up 23%.”

The equity research firm predicts a faster initial production ramp-up for Taiwan Semi’s 3nm technology compared to its 5nm process.

Where the 5nm revenue contribution stabilized at around 20% for two years post-launch, the 3nm node has already achieved 15% of total revenue within two quarters of its introduction, analysts highlighted.

They also expect a shorter interval between the 3nm and upcoming 2nm ramps, reduced to two years from the three-year gap observed between 5nm and 3nm advancements. This acceleration is attributed to the company’s proactive scheduling and a rise in demand for advanced technologies, which bodes well for semiconductor capital equipment companies.

“As data centers accelerate the pace of transition to AI workloads and as they migrate to more power-efficient general computation servers, we think TSM is a key beneficiary. We expect the customer base at 3nm to expand beyond AAPL. At the 2nm node, yet to be introduced, we think AAPL is likely the lead customer,” analysts said.