ab Global Research 5 January 2026 Asia Semiconductor Insight Top 10 themes for 2026 What is the main focus for Asia's logic semi firms in 2026? Robust cloud AI demand drove most of the 16% YoY growth for non-memory semis sales in 2025E. We forecast further growth acceleration to 25% YoY in 2026 with the proliferation of cloud AI applications, ramp of next-generation cloud accelerators with higher silicon content, and a mild restocking cycle. This report dives into the major themes we see for 2026 for Asia's ...

Summary of Key Points from the Investor Presentation on Semiconductor Industry Industry Overview - The semiconductor industry is currently viewed as attractive, particularly in the context of AI technology and its applications in various sectors [3][18] - The focus is on AI semiconductors, with both logic and memory segments being highlighted as attractive investment opportunities [7][21] Core Insights - **Top Investment Picks**: - AI: TSMC (Top Pick), SMIC, Aspeed, MediaTek, Alchip, GUC, KYEC, ASE, FOCI, ASMPT, AllRing - Memory: Winbond (Top Pick), Phison, Nanya Tech, APMemory, GigaDevice, Macronix - Non-AI: Realtek, USI for smartphone/glasses, NAURA Tech, AMEC for China WFE [7] - **Long-term Demand Drivers**: - **Tech Inflation**: Rising costs in wafer, OSAT, and memory are expected to create margin pressures for chip designers into 2026 [7] - **AI Cannibalization**: AI is anticipated to replace some human jobs, leading to demand weakness in certain sectors. The semiconductor supply chain is prioritizing AI semiconductors over non-AI [7] - **Tech Diffusion**: The demand for AI semiconductors is expected to accelerate due to generative AI, impacting various verticals like robotics and AI glasses [7] - **China AI Demand**: The introduction of DeepSeek is expected to trigger demand for inferencing AI, although there are concerns about the sufficiency of domestic GPU supply [7] Financial Metrics and Valuation - **Valuation Comparison**: - TSMC's P/E ratio is projected to decrease from 25.7 in 2025 to 19.4 in 2026, with EPS growth expected at 44% in 2025 and 32% in 2026 [8] - UMC's P/E ratio is expected to remain stable, with a slight decrease in EPS growth from -12% in 2025 to 2% in 2026 [8] - SMIC shows a significant increase in ROAE from 4% in 2025 to 9% in 2026, indicating potential recovery [8] Market Dynamics - **Semi Cycle**: The logic semi foundry utilization is currently at 70-80% in the first half of 2026, indicating that the market is still recovering [13] - **Non-AI Semi Growth**: Excluding NVIDIA's AI GPU revenue, non-AI semiconductor growth was slow at only 10% year-over-year in 2024 [14] - **Inventory Trends**: A decrease in inventory days historically correlates with an increase in the semiconductor stock index, suggesting a potential positive outlook for the sector [17] Additional Insights - **Memory Prices**: Memory stock prices are seen as leading indicators for logic semiconductors, reinforcing the attractive view on Greater China technology semiconductors [18] - **Investment Thesis**: Regardless of whether AI GPU or AI ASIC technologies prevail, TSMC is positioned to benefit as a major foundry supplier [21] - **Capex Trends**: TSMC's capital expenditure is projected to be between $43 billion and $55 billion for 2026, reflecting ongoing investments in AI semiconductor capabilities [27] Conclusion - The semiconductor industry, particularly in the AI segment, presents significant investment opportunities. Key players like TSMC and memory manufacturers are expected to benefit from ongoing technological advancements and market dynamics. Investors should closely monitor the evolving landscape, including supply chain developments and pricing trends, to capitalize on potential growth.

Core Insights - CoreWeave (CRWV) and Amazon (AMZN) are significant players in AI-focused cloud infrastructure, with CRWV specializing in GPU-optimized compute for AI workloads and AWS providing large-scale AI and high-performance cloud services [1][2] Market Overview - The global cloud AI market is projected to grow from $102.09 billion in 2025 to $589.22 billion by 2032, reflecting a CAGR of 28.5% [3] CoreWeave (CRWV) Highlights - CoreWeave has transformed from a niche GPU provider to a leading AI cloud service, achieving record revenue growth of 134% and a revenue backlog exceeding $55 billion [5][8] - The company has expanded its active power footprint by 120 MW to approximately 590 MW and contracted power capacity to 2.9 GW, with over 1 GW of contracted capacity available for future sales [6] - Major partnerships include a multi-year deal with Meta worth up to $14.2 billion and an expanded partnership with OpenAI totaling about $22.4 billion [7] - CoreWeave's revenue outlook for 2025 has been revised down to $5.05–$5.15 billion due to supply constraints and project delays [10] Amazon (AMZN) Highlights - AWS revenues increased by 20.2% year-over-year to $33 billion, representing 18.3% of Amazon's third-quarter sales [12] - AWS is rapidly expanding its power capacity, adding over 3.8 GW in the past year and planning to double its capacity by 2027 [14] - Amazon's international expansion is enhancing long-term growth potential, particularly in emerging markets [15] - Despite strong growth, Amazon faces financial pressures due to heavy investments in AI and data center expansion, with expected cash CapEx reaching around $125 billion in 2025 [16] Performance and Valuation - Over the past six months, CRWV shares have declined by 28.3%, while AMZN shares have increased by 12.6% [17] - Valuation metrics indicate that CRWV is overvalued with a Price/Book ratio of 9.27X compared to AMZN's 6.54X [21] - Analysts have revised earnings estimates upward for AMZN, while CRWV has seen a downward revision [22][24] Investment Considerations - AMZN is positioned favorably due to fast-growing AWS demand and significant infrastructure expansion, while CRWV is recognized for its high growth potential in the AI sector but faces challenges related to capital needs and customer concentration [25][26]

Investment Rating - The report reiterates a Buy rating on TSMC as the leading Cloud/Edge AI foundry [4] - ASE is also rated as a Buy due to its position as a key beneficiary of advanced packaging and testing [4] - GPTC is upgraded to a Buy with a new price target of NT$1,800, implying a 35% upside [4][22] Core Insights - TSMC's N3 capacity is forecasted to reach 170kwpm by the end of 2026, up from 120kwpm at the end of 2025 [1] - Cloud AI is expected to account for 35-40% of N3 demand in 2026, with smartphones and PCs making up 60-65% [1] - CoWoS capacity is anticipated to be tight in 2026, with TSMC likely to accelerate capacity expansion [2] - Demand forecasts for CoWoS have been raised significantly for Nvidia (13% increase), AMD (56% increase), and Broadcom [3] Summary by Sections N3 Foundry Supply-Demand Analysis - TSMC's N3 capacity is projected to increase to 170kwpm by end-2026 from 120kwpm at end-2025 [1] - Cloud AI products are expected to represent 35-40% of N3 demand in 2026, with other devices accounting for 60-65% [1] - N3 utilization is expected to be tight, particularly in Q4 2026 [1] CoWoS Capacity and Demand - CoWoS capacity is forecasted to reach 110kwpm by Q3 2026, with potential upside in late 2026 [2] - Demand for CoWoS from Nvidia is expected to reach 3 million units in 2026, with AMD's demand forecast raised by 56% [3] - Broadcom's CoWoS demand is projected to increase to 260-280k units in 2026, up from 90-100k in 2025 [3] Stock Recommendations - TSMC's capex for 2026/27 is raised to US$50bn/52bn from US$46bn/50bn, with a price target increase to NT$1,800 [4] - ASE is highlighted as a key beneficiary of advanced packaging and testing [4] - GPTC's long-term earnings CAGR is forecasted at 20% over 2027-29, with a significant market share in advanced packaging [22]

Summary of TSMC Conference Call Company Overview - **Company**: Taiwan Semiconductor Manufacturing Company (TSMC) - **Industry**: Semiconductors Key Points Capital Expenditure and Growth Estimates - TSMC raised its capital expenditure (capex) estimates for 2026 and 2027 to **US$50 billion** and **US$52 billion**, respectively, from **US$46 billion** and **US$50 billion** previously [2][5] - The increase is driven by the demand for cloud AI and the need for capacity expansion to support this demand [2][3] - TSMC plans to expand its N3 capacity to **170kwpm** by the end of 2026, up from **120kwpm** at the end of 2025 [2] Sales Growth Projections - TSMC's sales growth for 2026 is projected to increase from **22%** to **25%**, with an expected growth of **28%** in 2027 driven by cloud AI [3] - Factors contributing to this growth include: - Migration of cloud AI to N3 with higher wafer prices - Strong ramp-up of new AI product generations from companies like Nvidia, Google, and Amazon [3] Geopolitical Expansion - TSMC is accelerating its expansion in Arizona to align with U.S. government priorities for reshoring, particularly for cloud AI production [4] - The company may upgrade part of its first phase capacity from N4 to N3 in 2026 to support local production [4] Financial Performance and Valuation - TSMC's EPS estimates for 2026 and 2027 have been raised by **4%** and **7%**, respectively [5] - The price target has been increased from **NT$1,700** to **NT$1,800**, maintaining a Buy rating [5][7] - Revenue projections for 2026 and 2027 are **NT$4,658 billion** and **NT$5,961 billion**, respectively, reflecting a year-over-year growth of **23%** and **28%** [18] Operating Metrics - TSMC's revenue for 2025 is estimated at **NT$3,781 billion**, with a gross margin of **59.4%** and an operating margin of **49.9%** [20] - The company is expected to maintain a strong profitability profile with a net profit margin of **44.1%** in 2025 [18] Client Demand and Capacity Analysis - TSMC's N3 capacity is expected to meet increasing demand from cloud AI, with significant contributions from major clients like Nvidia and Google [11][12] - The demand for N3 capacity from cloud AI is projected to grow significantly, indicating a robust market for TSMC's advanced technology [11] Market Position - TSMC holds a significant market cap of **NT$36,178 billion** (approximately **US$1,160 billion**) and has a free float of **87%** [7] - The company is positioned as a major foundry provider for U.S. production, leveraging its scale and technology [4] Additional Insights - TSMC's utilization rate is projected to improve, with a target of **89%** by 2027 [10] - The company is expected to maintain a strong return on invested capital (ROIC) of **62.2%** in 2027 [6] This summary encapsulates the critical insights from TSMC's conference call, highlighting the company's strategic direction, financial outlook, and market positioning in the semiconductor industry.

Financial Performance & Growth Strategy - NXP aims for high single-digit organic revenue growth and gross margin expansion above 60%[10, 124] - The company plans to return 100% of excess free cash flow (FCF) to its owners[10, 124] - NXP targets doubling non-GAAP EPS by 2030+[11, 125] - NXP's revenue is projected to grow from $12.6 billion in 2024 to approximately $16.0 billion in 2027, with a CAGR of 6-10%[36] Market Positioning & Opportunities - Automotive and Industrial & IoT sectors are expected to drive growth at the intelligent edge, within a $1.3 trillion semiconductor market opportunity[16, 17] - Automotive revenue is expected to grow at a CAGR of 8-12% from 2024 to 2027, reaching ~$9.5 billion[42, 51] - Industrial & IoT revenue is projected to increase at a CAGR of 8-12% from 2024 to 2027, reaching ~$3.1 billion[48, 51] Financial Results (Q3 2025) - Q3 2025 revenue was $3.173 billion, an increase of 8% quarter-over-quarter but a decrease of 2% year-over-year[75] - Non-GAAP gross profit for Q3 2025 was $1.810 billion, resulting in a gross margin of 57.0%[78, 117] - Non-GAAP operating profit for Q3 2025 was $1.071 billion, yielding an operating margin of 33.8%[78, 117] Capital Return & Debt - NXP's cumulative capital return from 2018 to 2024 was $19.2 billion, representing 109% of non-GAAP FCF[91] - The company's net debt stood at $8.281 billion as of Q3 2025, with a net leverage of 1.8x[94]

Summary of TSMC Conference Call Company Overview - **Company**: Taiwan Semiconductor Manufacturing Company (TSMC) - **Industry**: Semiconductor Foundry - **Market Cap**: NT$38,512 billion / US$1,257 billion [7] Key Points Financial Performance and Guidance - TSMC raised full-year sales growth guidance to mid-30% and capex to US$40-42 billion for 2026 [2][3] - Q4 sales guidance indicates a 1% QoQ decline, aligning with expectations of flat QoQ [2] - Q3 gross margin (GM) was reported at 59.5%, exceeding expectations of 57.5%, attributed to cost reductions and improved utilization [2] - Q4 GM is expected to remain resilient at 60.0% [2] - 2025E EPS was raised by 5% to NT$64.39, and 2026-27E EPS increased by 8-10% due to a stronger outlook for Cloud AI and non-AI segments [5][8] Capital Expenditure and Growth Drivers - Capex for 2025E is projected to reach US$42 billion, with 2026/27E capex raised to US$46 billion/50 billion [3] - Key growth drivers include: 1. Expansion of N3 capacity to support AI accelerator migration [3] 2. Accelerated N2 ramp for smartphones and PCs [3] 3. Faster expansion in the US, with plans for earlier mass production in Arizona [3] Gross Margin and Overseas Expansion - Management revised overseas expansion GM dilution expectations from 2-3% to 1-2% for 2025, indicating a more favorable product mix and price adjustments [4] - Forecast for 2026 GM is 58.1%, slightly below the 59.4% estimate for 2025 due to N2 dilution and overseas expansion impacts [4] Revenue and Profitability Projections - Revenue projections for 2025E, 2026E, and 2027E are NT$3,781.8 billion, NT$4,537.8 billion, and NT$5,604.6 billion respectively, reflecting YoY growth rates of 31%, 20%, and 24% [14] - Net profit for 2025E is projected at NT$1,669.5 billion, with a net margin of 44.1% [14] Revenue Mix and Technology Adoption - Revenue mix by platform for Q325 shows: - HPC: 57% - Smartphone: 30% - IoT: 5% - Auto: 5% [12][29] - Wafer revenue by technology indicates a strong focus on advanced nodes: - 3nm: 23% - 5nm: 37% [13][31] Valuation and Market Position - Price target raised to NT$1,700 from NT$1,570, maintaining a Buy rating [5][7] - TSMC's valuation metrics include a P/E ratio of 23x for 2026E, with a long-term earnings CAGR of 20% [5] Industry Outlook - The semiconductor foundry industry is expected to continue outperforming the broader semiconductor market, driven by growth in HPC-related applications, including CPUs, networking, and AI accelerators [27] Additional Insights - TSMC's overseas expansion is expected to have a manageable impact on gross margins, with a focus on maintaining competitive pricing and product mix [4] - The company is optimistic about the demand for Cloud AI, anticipating further upside in sales, margins, and capex outlook from 2026E [2][3] This summary encapsulates the key insights from TSMC's conference call, highlighting the company's robust financial performance, strategic growth initiatives, and positive industry outlook.

Group 1 - Since Apple became the first company to reach a $1 trillion market cap in 2018, a total of 10 U.S. companies have market caps above $1 trillion, with Berkshire Hathaway being the only one without direct ties to the AI industry [1] - Oracle is positioned as the next tech stock likely to achieve the $1 trillion milestone, reemerging as a significant player in the AI industry [2] - Oracle has successfully pivoted from being a database company to establishing a strong presence in the cloud with its Oracle Cloud Infrastructure (OCI) [4] Group 2 - Oracle's remaining performance obligations (RPOs) rose 359% to $455 billion in the first quarter of fiscal 2026, leading to a 36% stock increase and briefly pushing its market cap above $900 billion [7] - The cloud segment constitutes 48% of Oracle's revenue, growing by 28% year-over-year in fiscal Q1, while overall revenue growth was 11% [9] - Grand View Research forecasts a 40% compound annual growth rate (CAGR) for the cloud AI market through 2030, indicating strong growth potential for Oracle [8]

Core Insights - TD Cowen analysts conducted a survey of 215 companies regarding their cloud spending plans, which has been a predictive indicator of critical industry trends since 2012 [1] Group 1 - The survey is an annual process that provides insights into cloud spending trends within the industry [1]

Core Insights - Nvidia is currently the world's most valuable company with a market cap of $4.32 trillion, driven by its dominance in the AI chip market [1] - Microsoft is experiencing significant growth in demand for its cloud-based AI and productivity offerings, positioning it as a potential competitor to Nvidia [1][5] Nvidia - Nvidia's growth is expected to continue due to substantial investments in AI data centers over the next five years [2] - The company's stock trades at 47 times trailing earnings and 25 times sales, reflecting high investor enthusiasm [3] - However, Nvidia faces challenges from increasing competition in the AI chip market and geopolitical factors [3][17] Microsoft - Microsoft reported a 15% increase in revenue to $282 billion for fiscal 2025, with adjusted earnings rising by 16% to $13.64 per share [6] - The Azure cloud business saw a remarkable 39% year-over-year revenue growth, indicating strong performance [6][10] - Microsoft's commercial bookings surged by 37% to over $100 billion, leading to a total remaining performance obligation (RPO) of $368 billion, also up by 37% [7][8] - The demand for cloud-based AI services is projected to grow at an annual rate of nearly 40% through the end of the decade, enhancing Microsoft's revenue potential [11] Future Projections - Analysts expect Microsoft's revenue to grow in the mid-teens, potentially reaching $425 billion by fiscal 2028 [14] - If Microsoft maintains a 15% annual growth rate, its revenue could hit $562 billion by the end of the decade, with a market cap potentially rising to $5.6 trillion [15][16] - The possibility of Microsoft surpassing Nvidia as the world's largest company by 2030 is plausible, given its lower price-to-sales ratio of 13 compared to Nvidia's 25 [15][19]