Core Insights - The semiconductor industry is experiencing an explosive growth phase driven by AI, marking a significant shift from previous cycles led by consumer electronics [3][6] - The demand for advanced semiconductor processes is expected to surpass that of mature processes, indicating a reversal of the traditional market structure [4][6] Group 1: Industry Trends - The semiconductor sector is entering a new growth phase characterized by "asymmetric growth," where AI-related fields are seeing explosive demand while traditional markets are in a digestion phase [3] - The advanced process market share is projected to exceed that of mature processes, forming an inverted pyramid structure in the industry [4] - The three main trends in semiconductor process development include density enhancement, advanced packaging technologies, and system-level optimization [5][6] Group 2: Technological Developments - The most advanced semiconductor processes, such as 3nm, have been in mass production for three years, with 2nm expected to enter mass production in the second half of 2025 [5] - The demand for 2.5D and 3D packaging technologies has surged, indicating a significant market shift and the importance of these technologies [5] - System-level optimization is becoming a critical trend, requiring collaboration from system companies from the initial design phase [5] Group 3: Investment Opportunities - The current AI-driven semiconductor boom is likened to an industrial revolution, with a growing gap between market demand and actual supply chain capacity [6] - Long-term investment opportunities are anticipated in advanced semiconductor equipment, materials, manufacturing, and packaging [6]

Investment Rating - The report rates the electronic industry as "stronger than the market" [1]. Core Insights - The semiconductor industry is experiencing an explosive growth phase driven by AI, marking a significant shift from previous cycles driven by consumer electronics [4]. - The demand for advanced processes is expected to surpass that of mature processes, indicating a reversal of the traditional pyramid structure in semiconductor manufacturing [4]. - The report identifies three main trends in semiconductor process development: density enhancement, 2.5D and 3D packaging technologies, and system-level optimization [4]. Summary by Sections Industry Overview - The semiconductor industry is undergoing a transformation characterized by asymmetric growth, where AI-related sectors are seeing explosive demand while traditional sectors are in a digestion phase [4]. - Concerns about the sustainability of AI-driven demand have diminished as major international clients begin to implement AI solutions [4]. Market Trends - Advanced processes are becoming more critical, with the market share of advanced processes expected to exceed that of mature processes [4]. - The report highlights the importance of energy efficiency in advanced processes, with examples showing significant power savings from newer technologies [4]. Investment Recommendations - The report suggests that the current AI-driven semiconductor boom is comparable to an industrial revolution, with a growing gap between market demand and supply chain capacity [4]. - Long-term investment opportunities are identified in advanced equipment, materials, manufacturing, and packaging within the semiconductor sector [4].

Core Viewpoint - TSMC has become the world's largest foundry with a valuation exceeding $1 trillion, significantly ahead of competitors like Samsung and Intel, despite previous concerns about increasing competition [1] Financial Performance - TSMC reported consolidated revenue of approximately NT$933.79 billion (about RMB 228.03 billion) and a net profit of NT$398.27 billion (about RMB 97.26 billion), with earnings per share at NT$15.36 [2][3] - Revenue growth exceeded 40% year-on-year, with gross margin increasing over 5 percentage points, indicating enhanced pricing power; however, there are signs of demand slowing down in the quarter [3][4] Business Segmentation - TSMC's revenue from advanced processes includes 24% from 3nm technology and 36% from 5nm technology, while 7nm technology's revenue remains stable despite a declining percentage [4] - High-performance computing (HPC) remains a core pillar, accounting for over 60% of revenue with double-digit growth year-on-year, but there are concerns about the sustainability of AI demand [6] Cash Flow Situation - Operating cash flow for the quarter reached NT$500 billion (approximately $16 billion), with a dividend yield of only 1.2%, sufficient to cover dividends but facing high capital expenditures of $9.4 billion [8] - Projected capital expenditures for 2025 are expected to reach $40 billion, leading to an estimated annual free cash flow of about $25 billion, resulting in a free cash flow yield of less than 3% [8][9] Competitive Landscape - Intel is advancing its 18A process node and plans to expand capacity, while Samsung is accelerating its 2nm process development, posing potential threats to TSMC's market position [10] - The U.S. market's shift towards domestic manufacturing and protectionist policies may challenge TSMC's competitive edge, especially if Samsung establishes 2nm capacity in the U.S. [10] Conclusion - TSMC faces two core risks: high valuation combined with low free cash flow yield, and significant investments by Intel and Samsung aiming for key process breakthroughs that could compress profit margins [12]