Taiwan Semiconductor hits a new high, what is the catalyst this time?

Author: Zhang Yifan

Editor: Shen Siqi

Source: Hard AI

Taiwan Semiconductor's advanced process price increase exceeded expectations, catalyzing positive sentiment and pushing the stock price to a new all-time high.

At the Computex conference in early June, there were rumors in the market about Taiwan Semiconductor's price hike. Analysts initially believed that only high-performance computing (HPC) customers like NVIDIA could afford a 10% increase in wafer prices, and Apple, as the largest customer for advanced processes, may also raise prices this year due to capacity constraints ("Taiwan Semiconductor OS: Even if Apple is the largest customer, I will raise prices even if it's a little less").

However, Morgan Stanley also believes that other consumer electronics manufacturers may face higher price increases than previously expected, and negotiations with them will be more challenging ("Taiwan Semiconductor OS: The capacity for advanced processes is really tight this year. Whether your business is good or not, if you want capacity, you have to accept the price hike").

Gradual Confirmation of Price Increase Speculation in the Supply Chain

The latest supply chain news from Morgan Stanley also confirms these speculations:

Taiwan Semiconductor is hinting to the supply chain that by 2025, there will be supply constraints on its advanced process wafer foundry capacity. This means that if customers do not accept higher prices, it will be difficult to obtain the required capacity.

Meanwhile, in its report, Morgan Stanley pointed out:

Due to the upward adjustment in iPhone shipment expectations, Taiwan Semiconductor's 3nm process will run at a utilization rate of 110-115% in 2H24, while the utilization rate of the 4/5nm process is also close to 100%.

Subsequently, expectations for Taiwan Semiconductor's price hike also changed. Morgan Stanley expects that by 2025, Taiwan Semiconductor will:

Increase the average selling price of 3nm chips by 4%;

Increase the average selling price of 4nm and 5nm chips by 11%;

Mature process nodes (16nm and above) will have sufficient capacity without price increases, contrary to previous market expectations of price reductions;

(Morgan Stanley also provided the expected price increase trajectory for each process node over the next 2 years, all going up)

Benefiting from the new price hike expectations, Taiwan Semiconductor's stock price hit a new all-time high. From an overall perspective, Morgan Stanley predicts that by 2025, Taiwan Semiconductor's overall wafer business prices will increase by 5%, compared to the previous forecast of only 2%.

Intel, ARM Competition or Taiwan Semiconductor Dominance

In addition, Morgan Stanley also mentioned some issues regarding Intel's impact on Taiwan Semiconductor, which should not be a concern until the end of 2026.

Lunarlake (the only processor capable of achieving 40+ TOPs NPU performance against the ARM camp using x86, fully utilizing Taiwan Semiconductor's wafers) and Arrowlake (using TSMC's N3, N5, and N6 wafers) will have to rely on Taiwan Semiconductor for foundry services until the completion of Intel's 18A FAB capacity by the end of 2026 ("Hard AI Note: Intel's foundry services lag behind more than once") Whether it can be achieved as expected is also uncertain**).

Therefore, currently, regardless of how ARM and X86 fight in the mobile market, the only beneficiary is Taiwan Semiconductor Manufacturing Company Limited (TSMC: the market is watching me).

In addition, TSMC will announce its second-quarter results on July 18.

Morgan Stanley expects TSMC to announce a 13% sequential revenue growth in the second quarter of 2024, with a gross margin similar to the first quarter of 2024 (around 52%). Driven by the continuous demand for artificial intelligence technology, it is expected that TSMC's full-year revenue growth in 2024 will reach around 20%, or even exceed the initially estimated low to mid-20% growth.

Regarding capital expenditures, Morgan Stanley believes that if TSMC can obtain discounts in equipment procurement, the full-year capital expenditure guidance may be raised to USD 30 billion to USD 32 billion, higher than the previous USD 28 billion to USD 32 billion