After Taiwan Semiconductor's "quarterly report explosion": Wall Street praises endlessly and raises target prices one after another!

According to the financial news app Caijing Intelligence, after Taiwan Semiconductor (TSM.US) reported third-quarter results and guidance that exceeded expectations, its stock price surged 13% on Thursday, causing a strong reaction on Wall Street. Taiwan Semiconductor's outstanding performance led to a rise in chip stocks, with NVIDIA (NVDA.US) up 3%, Qualcomm (QCOM.US) up 2%, Broadcom (AVGO.US) up 4%, AMD (AMD.US) and Intel (INTC.US) up 1% each, and Micron Technology (MU.US) up 3%. Wall Street analysts have released reports optimistic about Taiwan Semiconductor's future prospects.

Needham maintained a buy rating on the stock and set a target price of $210. Analysts led by Charles Shi stated, "Taiwan Semiconductor delivered an explosive quarterly report, with revenue, gross margin, operating profit margin, and guidance all far exceeding general expectations."

Taiwan Semiconductor is currently expected to have capital expenditures slightly above $30 billion in 2024, and even higher in 2025. However, analysts view this as a $1 billion cut from this year's capital expenditure budget.

Analysts point out that due to the relatively subdued quarterly capital expenditures in the first three quarters of this year (around $6 billion per quarter), the capital expenditure guidance implies that capital expenditures will almost double in the fourth quarter of 2024, reaching around $12 billion, likely driven by the initial N2 expansion.

Taiwan Semiconductor's 3nm process technology contributes to 20% of total wafer revenue, while the 5nm process technology accounts for 32% of total wafer revenue.

Analysts suggest that compared to Needham's estimates, Taiwan Semiconductor's third-quarter performance shows much stronger performance for N3, while N5's performance is slightly weaker. The growth of N3 is mainly driven by Apple (AAPL.US), while N5 revenue seems to stabilize after six consecutive quarters of strong growth.

Chairman and CEO of Taiwan Semiconductor, Wei Zhejia, stated during the company's earnings conference call that revenue from server artificial intelligence processors will more than double this year, reaching around 15% of total revenue by 2024.

Based on comments from Taiwan Semiconductor's management, analysts estimate that the company's artificial intelligence revenue last year was around $4 billion, and it could reach $13 billion this year. According to analysts, Taiwan Semiconductor has indicated that artificial intelligence will account for 20% of total revenue by 2028, and if it maintains a compound annual growth rate of over 15% in total revenue over the next four years, this will bring in over $33 billion in revenue.

Shi and his team of analysts stated that the revenue distribution between technology nodes in Taiwan Semiconductor's report indicates that non-wafer revenue (mainly from packaging) increased significantly from $2.4 billion in the second quarter of 2024 to $3.2 billion in the third quarter of 2024, a growth of 36%.

This may be partly attributed to Apple driving the growth of InFO revenue, but the magnitude of continuous growth appears to be higher than seasonal growth (approximately 20% quarter-on-quarter), and indeed supports rumors that Taiwan Semiconductor will increase its CoWoS (Chip On Wafer On Substrate) capacity by 60% to 80% in the third quarter of 2024 Apart from Needham, Bank of America also maintains a buy rating on Taiwan Semiconductor. Analysts have raised the stock's target price to NT$1,400, with a 35% upside, to reflect the company's strong third-quarter performance and fourth-quarter guidance, improved artificial intelligence capabilities, and solid industry leadership position.

Analysts added that the continued growth in capital expenditures in 2024 and the optimistic tone for 2025 further support this outlook. The positive fourth-quarter guidance also enhances their confidence in future growth.

Benefiting from advancements in artificial intelligence technology, Taiwan Semiconductor's valuation remains attractive, including the acceleration of NVIDIA's Blackwell, increased N3 production, rising demand for advanced nodes, higher average selling prices, and market share gains, all of which will drive the company's structural profit growth.

The bank also noted that despite concerns about recent demand, they reiterated their buy rating.

The company's demand outlook is very optimistic, with strong artificial intelligence demand signaling the beginning of a long-term trend. Additionally, non-artificial intelligence businesses are gradually stabilizing and recovering. Analysts added that the personal computer and smartphone business (accounting for approximately 45% to 50% of revenue) are benefiting from rapid silicon area growth.

Beyond 2026, due to high demand for N2 and A16 technologies and Taiwan Semiconductor's technological leadership, the company's growth prospects remain strong, with analysts expecting competition to continue to ease. The bank added that Taiwan Semiconductor expects significant orders from U.S. integrated device manufacturers (IDMs) and has no interest in acquiring their wafer fabs.

Bank of America believes the risk of antitrust issues is limited, as the company holds only about 30% of the total addressable market (TAM) in the foundry 2.0 market, and its market behavior does not meet the standards for antitrust concerns.

Furthermore, analysts also stated that a slowdown in shipments from ASML.US may indicate an improvement in long-term foundry supply or demand, further solidifying Taiwan Semiconductor's market position