TSMC(US:TSM) Zhi Tong Cai Jing·2025-10-20 14:13Core Viewpoint - HSBC maintains a "Buy" rating for TSMC, raising the target price from NT$1,800 to NT$2,050, supported by strong performance, robust AI demand, and expansion of advanced technology [1][6] Group 1: Investment Signals - The rationale for TSMC's "Buy" rating is straightforward: risks are decreasing while potential is increasing [1] - HSBC projects TSMC's earnings per share (EPS) to be NT$81.45 by 2026, applying a price-to-earnings (P/E) ratio of 25x, which is deemed reasonable as previous concerns over foreign exchange fluctuations and semiconductor tariffs are diminishing [1][6] Group 2: Q3 Performance - TSMC's Q3 results exceeded expectations across the board, with revenue at NT$99 billion, a 6% quarter-over-quarter increase, and surpassing HSBC's forecast by 0.1% and market consensus by 2.3% [2] - Gross margin reached 59.5%, exceeding management's guidance of 56.5% and HSBC's prediction of 58.1% [2] - Net profit was NT$45.23 billion, with EPS at NT$17.44, exceeding HSBC's expectations by 20.7% and 11.2% respectively [2] Group 3: Business Structure - Advanced process nodes (7nm and below) accounted for 74% of revenue, with 3nm contributing 23%, 5nm 37%, and 7nm 14% [3] - High-performance computing represented 57% of revenue, while smartphones accounted for 30%, together making up 87% of total revenue, indicating that AI demand is a primary driver [3] Group 4: Growth Engines - TSMC's long-term growth is driven by AI demand and advanced technology iterations, both of which are essential [3] - AI demand has strengthened compared to three months ago, with management expressing confidence in the ongoing trend [3] - TSMC plans to expand CoWoS (advanced packaging technology) capacity from 930,000 wafers to 1,100,000 wafers by 2026 to meet AI demand [4] Group 5: Advanced Technology - TSMC is set to begin mass production of 2nm technology in the second half of 2025, which is expected to be 10-15% faster and reduce power consumption by 20-30% [5] - The N2P (2nm upgrade) is scheduled for mass production in the second half of 2026, with further performance and power optimizations [5] - Long-term technology reserves are strong, with additional advancements planned for A16 and A14 technologies [5] Group 6: Global Factory Layout - TSMC is accelerating its global factory deployment to match demand, with significant investments in the U.S., Japan, Europe, and Taiwan [6] - In Arizona, TSMC is investing $16.5 billion to build six wafer fabs and two packaging plants, with the first fab expected to start production in Q4 2024 [6] - The first special technology factory in Japan is set to begin production by the end of 2024, with plans for further expansion [6] Group 7: Long-term Logic - HSBC expresses confidence in TSMC's long-term certainty, with AI demand supporting revenue growth and advanced technology maintaining competitive advantages [6][7] - As long as the AI trend continues and technology iterations keep pace, TSMC's valuation reassessment is expected to persist [7]