Taiwan Semiconductor's stock price hits a new high! The booming demand for AI GPUs and AI ASICs cannot be separated from it

According to the Zhitong Finance APP, TSMC (TSM.US), the chip manufacturing giant known as the "king of chip foundries," saw its stock price surge over 6% at the start of trading in the U.S., reaching a historic high. As of the time of writing, TSMC's ADR price in the U.S. rose by 4.42% to $217.88. Benefiting from the massive A-series chip orders brought by Apple's iPhone 16 high-end models, Broadcom and Marvell's recent financial reports revealed an incredibly strong demand for AI ASICs, the most powerful competitors in the AI GPU market, as well as the explosive demand for Blackwell architecture AI GPUs disclosed by NVIDIA's core foundry partner Foxconn. Since December, TSMC's stock price has continued to rebound, and the upward momentum seems far from over.

In addition, the outlook for significant price increases in foundry contracts for chips at 5nm and below, as well as advanced chip packaging prices like CoWoS, has also been a core catalyst for TSMC's recent stock price rebound. According to media reports, TSMC will adjust prices for orders of advanced chip processes at 3nm, 5nm, and the soon-to-be-mass-produced 2nm nodes in 2025, with expected increases in foundry prices ranging from 3% to 8%. In particular, the price increase for AI-related high-performance computing chip foundry orders may reach 8% to 10%; TSMC also plans to implement larger price hikes for advanced packaging services like CoWoS, with increases expected between 15% and 20%.

Currently, TSMC is the largest contract chip foundry in the world. As the fervor for AI continues unabated and sweeps across the globe, its clients, including NVIDIA, AMD, and Broadcom, have benefited from the surge in demand for the most essential infrastructure for AI—AI chips. The significant increase in the scale of foundry contracts from these chip giants has driven TSMC's performance to consistently exceed expectations since last year, which is a crucial logical support for the continuous record highs of TSMC's stock prices in both Taiwan and the U.S. since last year.

For a long time, TSMC has been the core chip manufacturer for fabless chip design companies such as Apple, NVIDIA, AMD, and Broadcom, especially for the data center server-side AI chips manufactured for chip giants like NVIDIA and AMD, as well as the AI ASIC chips custom-made for tech giants like Google, Microsoft, and Amazon. These are considered the key hardware infrastructure driving the massive AI training/inference systems behind generative AI tools like ChatGPT and Sora.

With decades of chip manufacturing technology accumulation and being at the forefront of chip manufacturing technology improvement and innovation (pioneering the FinFET era and driving the start of the 2nm GAA era), TSMC has maintained a leading position in advanced processes and packaging technologies among global chip manufacturers, and has long dominated the vast majority of global chip foundry orders, especially for foundry orders of chips at 5nm and below More importantly, TSMC is currently capturing almost all high-end chip packaging orders for processes of 5nm and below with its industry-leading 2.5D and 3D chiplet advanced packaging, and the advanced packaging capacity is far from meeting demand. The long-standing supply shortage of NVIDIA H100/H200 and the capacity of Blackwell are entirely constrained by TSMC's 2.5D-level CoWoS packaging capacity. Currently, chip giants like Apple and AMD are turning to TSMC's 3D-level advanced packaging capacity, which may further drive the supply-demand imbalance for TSMC's advanced packaging capacity.

The current demand for AI chips is incredibly strong and is likely to remain so for a long time. AMD CEO Lisa Su recently stated at a product launch event that the demand for data center AI chips, including AI GPUs, far exceeds expectations, and it is projected that by 2027, the market size for data center AI chips will reach $400 billion, further rising to $500 billion in 2028. This implies that the compound annual growth rate of the global data center AI chip market is expected to exceed 60% from the end of 2023 to 2028.

AI ASIC Triggers a New Wave of Chip Stock Investment, TSMC is the Biggest Winner

The core supply force of Ethernet switch chips for large global AI data centers and AI ASIC chips in the AI hardware field—Broadcom (AVGO.US)—has become the focal point of this unprecedented investment wave surrounding artificial intelligence since 2023, with its investment heat long second only to AI chip leader NVIDIA. After announcing strong growth in December and an extremely optimistic outlook for the AI ASIC chip market, its stock price surged over 20% in a single day in the U.S. stock market, with its market capitalization surpassing the significant milestone of $1 trillion.

Broadcom has proven with solid performance that not only is the demand for NVIDIA AI GPUs incredibly strong, but another entirely different core hardware route—AI ASIC demand may grow even faster than AI GPU demand, and it has single-handedly attracted global funds into investments related to AI ASIC—such as stocks in the A-share market that are highly correlated with AI ASIC concepts, and listed companies participating in the Broadcom or Marvell AI ASIC chip industry chain—such as TSMC, known as the "king of chip foundries," and Advantest, a Japanese manufacturer of AI ASIC chip testing equipment, which has collaborated with Broadcom to create the most typical AI ASIC—TPU (Tensor Processing Unit) for Google, as well as BE Semiconductor, a supplier of equipment crucial for chiplet advanced packaging in the Hybrid Bonding field.

Broadcom's performance report released in December showed that its AI-related revenue (data center Ethernet chips + AI ASIC) surged 220% year-on-year, totaling $12.2 billion for the entire fiscal year. More importantly, Broadcom CEO Hock Tan stated during the earnings conference call that revenue from artificial intelligence products is expected to grow 65% year-on-year in the first quarter of fiscal year 2025, far outpacing the company's overall semiconductor business growth rate of about 10% It is expected that by the fiscal year 2027, the potential market size for AI components (Ethernet chips + AI ASIC) created for global data center operators will reach as high as $90 billion. Chen Fuyang emphasized during the conference call: "The opportunities related to AI chips in the next three years are incredibly vast."

Goldman Sachs recently stated in a report that TSMC and its supply chain partners (such as ASE, KYEC, etc.) will benefit from the rapid growth of AI ASIC design and manufacturing. Currently, the two core dominant forces in the AI ASIC field—Broadcom and Marvell Technology—are both major customers of TSMC. It is not an exaggeration to say that their AI ASIC chip production capacity is entirely dependent on TSMC, which is also the core logic behind Morgan Stanley's bullish outlook on TSMC's stock price reaching NT$1,388, far exceeding the current stock price.

"The company is collaborating with large cloud computing customers to develop customized AI chips. We currently have three hyperscale cloud customers who have established their own multi-generational 'AI XPU' roadmap, planning to deploy at different speeds over the next three years. We believe that by 2027, each of them plans to deploy a million XPU clusters on a single architecture." Broadcom CEO Chen Fuyang stated. Here, XPU refers to a "highly scalable" processor architecture, typically referring to AI ASICs, FPGAs, and other customized AI accelerator hardware, excluding NVIDIA AI GPUs.

Wall Street Bullish on TSMC, US ADRs Expected to Reach $250

Goldman Sachs stated that TSMC is likely to adjust its long-term growth targets at the upcoming analyst meeting, mainly benefiting from strong demand for advanced processes of 5nm and below, particularly driven by chips related to artificial intelligence. Currently, the company's management expects a compound annual growth rate (CAGR) of 15%-20% for revenue from 2021 to 2026. Given the favorable market outlook, Goldman Sachs expects this target to be raised or extended into the next five years.

In response to market concerns about TSMC's expansion plans in the United States, Goldman Sachs pointed out in its latest report that the planned second and third fabs in the U.S. are expected to start mass production in 2028 and 2030, respectively. TSMC's management may update relevant progress at the analyst meeting, and Goldman Sachs expects the first U.S. fab to secure some chip orders from American tech giants like Apple and NVIDIA by 2025.

At the same time, Goldman Sachs believes that TSMC's competitive environment is more favorable, as Samsung Electronics and Intel face difficulties with chip yield when transitioning to advanced process nodes of 3nm, 4nm, or 5nm. Therefore, Goldman Sachs expects that starting this year, prices for high-end chip process nodes of 3nm and 5nm will increase in the mid-single digits, while advanced packaging technologies (CoWoS and 3D packaging) prices may rise by at least 15%. Against the backdrop of rising prices, Goldman Sachs estimates that TSMC's gross margin will rise to 59.3% this year, compared to 56.1% last year. Goldman Sachs raised its target price for Taiwan Semiconductor in its latest report, increasing the 12-month target price from NT$1,320 to NT$1,355. As of Monday's close, Taiwan Semiconductor's stock price surged 4.56% to NT$1,125 per share. Additionally, Goldman Sachs raised the target price for Taiwan Semiconductor's ADR from $248 to $254, reiterating a "Buy" rating, and reaffirming that the stock is included in Goldman Sachs' "Conviction Buy" list. As mentioned, another major Wall Street firm, Morgan Stanley, is bullish on Taiwan Semiconductor's stock price, targeting NT$1,388, primarily based on the logic that Taiwan Semiconductor holds nearly all the capacity for the highly demanded AI ASIC