Summary of TSMC Conference Call Company Overview - **Company**: TSMC (Taiwan Semiconductor Manufacturing Company) - **Industry**: Semiconductor Manufacturing Key Points and Arguments Revenue Growth Projections - TSMC is expected to achieve **30% USD revenue growth in 2026**, driven by increased demand for N3 technology, a stronger ramp of N2, and growth in advanced packaging [1][11] - Revenue growth is projected to continue at **20+% in 2027**, supported by tight capacity in leading-edge nodes and ongoing investments in AI [1][11] Gross Margins and Financial Performance - Gross Margins (GMs) are anticipated to remain around **60% through 2026**, aided by a favorable product mix and higher yields from N3 technology [1][11][36] - GMs are expected to be elevated in **1H26** due to high demand for expedited wafer orders, which carry a significant price premium [1][36] Capacity Expansion and Capital Expenditure - TSMC is entering a **capex upcycle**, with expected capital expenditures of **$48 billion in 2026** and **$55 billion in 2027**, focusing on N2, N3, and US fab expansions [1][51] - N3 capacity is projected to reach **147k wafers per month by the end of 2026**, with significant contributions from capacity conversions and new builds [1][19][57] Datacenter AI Revenue Growth - Datacenter AI revenue is forecasted to grow at a **57% CAGR from 2024 to 2029**, driven by strong demand for GPUs and ASICs, larger die sizes, and higher wafer ASPs [1][29] - By 2029, Datacenter AI could represent over **40% of TSMC's total revenues**, up from mid-teens in 2024 [1][31] Market Position and Competitive Landscape - TSMC is expected to maintain a **95% market share in AI accelerators** during the N2 era, despite competition from Intel and Samsung [1][49] - The company is not experiencing any significant share loss in leading-edge technology, with strong momentum in N2 tapeouts [1][42][49] Risks and Challenges - Key upside risks include stronger-than-expected gross margins and continued demand for N2 and N3 technologies [1] - Downside risks involve potential weakness in AI capital expenditures and increasing competition from Intel [1][11] Upcoming Guidance and Expectations - For **1Q26**, TSMC is expected to guide for flattish revenues quarter-over-quarter, with GMs projected to remain in the **61-63% range** [1][70] - The company will announce its **4Q25 results** on January 15, with expectations for revenues to exceed guidance [1][69] Additional Important Insights - Non-wafer revenues are expected to grow by **44% and 29% in 2026 and 2027**, respectively, driven by CoWoS expansion and increased adoption of advanced packaging technologies [1][21] - TSMC's aggressive capacity expansion plans are in response to strong demand from major clients like NVDA and Apple, indicating robust future growth potential [1][51][68]

2 January 2026 Price Target Change Asia Semiconductors and Global Mamory Asia Semiconductors & Global Memory: 2026 is still all about AI Mark Li +852 2123 2645 mark.li@bernsteinsg.com Edward Hou, CFA +852 2123 2623 edward.hou@bernsteinsg.com Yipin Cai, CFA +852 2123 2669 yipin.cai@bernsteinsg.com 2026 is still about AI. Sufficient visibility shows that 2026 demand for AI accelerators (XPU) is so strong that many supplies (e.g. CoWoS, memory, logic wafer) struggle to keep up. But unfortunately 2026 marks the ...

Core Viewpoint - The collaboration between Intel and imec marks a significant step towards the practical application of two-dimensional field-effect transistors (2DFET) by demonstrating a process compatible with 300mm wafers, indicating progress in integrating two-dimensional materials into large-scale semiconductor manufacturing [1][2][3] Group 1: Technological Advancements - Intel and imec have developed a contact and gate stack integration scheme that is compatible with wafer fabrication, addressing the challenge of integrating transition metal dichalcogenides (TMDs) into the manufacturing process without damaging the sensitive channels [2] - The use of high-quality two-dimensional layers, combined with a multi-layer stack of AlOx, HfO₂, and SiO₂, allows for the formation of embedded top contacts that protect the underlying two-dimensional channels from contamination and physical damage [2] Group 2: Industry Implications - The work done by Intel and imec is not expected to lead to immediate product commercialization but is valuable in reducing risks associated with the development and eventual production of chips based on two-dimensional materials [3] - Intel's strategy positions two-dimensional materials as a future option to be evaluated before silicon reaches its physical limits, aiming to address manufacturing challenges early in the development process [3] Group 3: Long-term Vision - The announcement from Intel's foundry conveys two key messages: the ongoing commitment to long-term technology R&D that will be critical for the semiconductor industry in the coming decades, and the necessity for new transistor concepts to consider manufacturability even in the research phase [3]

Core Viewpoint - TSMC's chairman, Wei Zhejia, is set to visit mainland China for the OIP ecosystem forum, indicating a strategic shift in TSMC's approach to collaboration with local companies amidst ongoing U.S. chip restrictions [5][6][10]. Group 1: TSMC's Strategic Moves - Wei Zhejia's participation in the OIP forum in Nanjing marks the culmination of a global tour aimed at enhancing TSMC's ecosystem, emphasizing the importance of the Chinese market for TSMC's operations [7][8]. - The forum will focus on the integration of AI potential with TSMC's advanced processes and packaging technologies, particularly addressing energy efficiency challenges in next-generation AI chips [7][8]. - TSMC's engagement with Alibaba and other local firms reflects a commitment to deepening partnerships in the semiconductor sector, especially in AI and IoT applications [8][12]. Group 2: Market Dynamics and Challenges - Despite U.S. restrictions, the projected demand for chips in China is expected to reach between 100 billion to 200 billion units by 2025, presenting a significant opportunity for semiconductor companies [14]. - TSMC's current operations in mainland China are primarily focused on 28nm mature processes, which local companies have already mastered, indicating a potential competitive landscape [14][16]. - The visit is seen as a balancing act for TSMC, navigating compliance with U.S. regulations while seeking to expand its market presence in China [10][18]. Group 3: Potential Collaboration and Impact - Possible collaboration areas include deepening partnerships in mature process technologies and developing solutions for IoT and automotive electronics [18]. - TSMC's expertise in advanced packaging and process technologies could enhance the performance of local chip designs, fostering innovation within the Chinese semiconductor ecosystem [16][18]. - The visit underscores the complex dynamics of the semiconductor industry, where TSMC's strategic adjustments could influence the entire supply chain amid geopolitical tensions [18][19].

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.

Core Viewpoint - Huatai Securities maintains a "Buy" rating on TSMC (TSM.US) with a target price of $370, citing strong Q3 performance driven by robust AI demand and expansion in advanced process and packaging capacity [1] Financial Performance - TSMC's Q3 results exceeded expectations, primarily fueled by strong AI demand [1] - The company has raised its revenue and capital expenditure guidance for 2025 [1] Future Outlook - N2 mass production is imminent, with expectations for growth in High-Performance Computing (HPC) in 2026 [1] - TSMC's technological leadership and pricing power are expected to offset short-term margin dilution from overseas expansion, ensuring long-term profitability [1]

Core Viewpoint - TSMC reported record net profit for Q3 2025, but its stock price opened high and then fell due to market expectations of stronger AI demand and tight capacity, while TSMC remained conservative without increasing its capacity guidance or updating its CoWoS plans [1][5][11] Financial Performance - Q3 revenue reached $34.14 billion, a 30% year-over-year increase, with net profit of $15.5 billion, up 39% year-over-year [2][7] - Q3 gross margin improved to 59.5%, exceeding analyst expectations of 57.1%, while operating margin rose to 50.6% [1][7][10] - Q4 revenue guidance indicates a slight decline of 1% quarter-over-quarter, reflecting full capacity utilization [1][9] AI Demand and Market Trends - TSMC's Chairman noted that AI demand is significantly stronger than three months ago, driven by exponential growth in tokens, which are doubling approximately every three months [4][5][12] - The company is adopting a "Foundry 2.0" strategy to integrate advanced packaging and system-level performance optimization to meet AI-driven semiconductor demand [4][30] - TSMC's clients, including Nvidia, are increasingly relying on TSMC for chip production, indicating sustained demand for GPU chips [3][6] Capacity and Capital Expenditure - Q3 capital expenditure was $9.7 billion, with a total of $29.39 billion for the first nine months, reflecting ongoing capacity expansion to meet high demand [2][11] - TSMC plans to allocate 70% of its 2025 capital budget to advanced process technologies, with total capital expenditure expected to be between $40 billion and $42 billion [11][12] Customer Signals and Industry Outlook - TSMC is receiving strong signals from its customers' customers for increased capacity to support their business, reinforcing confidence in the fundamental demand for semiconductors [5][13] - The company is closely monitoring AI-related demand and is prepared to expand capacity in response to structural growth in the market [12][14] Global Manufacturing and Expansion Plans - TSMC is accelerating capacity expansion in Arizona, with plans for advanced packaging facilities to support customer needs [15][26] - The company is also expanding its manufacturing footprint in Japan and Europe, with ongoing projects in Kumamoto and Dresden [15][16] Technology and Innovation - TSMC's N2 technology is on track for production later this year, with expectations for rapid capacity ramp-up driven by demand in AI and high-performance computing applications [16][28] - The company emphasizes the importance of system-level performance over traditional transistor scaling, aligning with industry shifts [6][30]

Investment Rating - The report maintains a "Buy" rating for the company with a target price raised to $370 from $320 [1][5][7]. Core Insights - The company reported a 10.1% quarter-over-quarter revenue increase in Q3 2025, with a gross margin of 59.5%, exceeding guidance [1][12]. - For Q4 2025, the company expects revenue between $32.2 billion and $33.4 billion, with a gross margin forecast of 59%-61% [1][14]. - The company has raised its 2025 revenue guidance to a year-over-year growth of close to 35%, up from approximately 30% [1][14]. - The company expressed strong confidence in the growth of AI-related demand, expecting it to exceed previous guidance of a 40% CAGR from 2024 to 2029 [1][2]. Summary by Sections Financial Performance - In Q3 2025, the company achieved a revenue of $33.10 billion, with a gross margin of 59.5%, significantly above the guidance of 57.5% [1][12]. - The company’s capital expenditure for Q3 2025 was $9.70 billion [13]. AI Demand - The company noted that customers are requesting higher capacity due to increasing confidence in AI trends, with expectations for semiconductor demand growth to exceed the previously estimated CAGR of 40% from 2024 to 2029 [2][30]. - The company plans to increase investments in advanced nodes and packaging to meet the growing demand [2][30]. Global Expansion - The company is accelerating production in Arizona and has plans for additional facilities in Japan and Germany to support AI demand [3][31]. - The company expects a gross margin dilution of 1% to 2% in 2025 due to overseas factory ramp-up, which is an improvement from previous estimates [3][29]. Advanced Processes - The company is on track to achieve mass production of its N2 process in late 2025, with N2P and A16 expected to enter production in the second half of 2026 [4][32]. - The N2 series is anticipated to become a significant and lasting core node, enhancing the company's profitability [4][32]. Profit Forecast and Valuation - The revenue forecasts for 2025-2027 have been adjusted upward by 1.9%, 2.8%, and 0.4% respectively, with net profit estimates raised by 7.3%, 7.9%, and 6.1% [5][26]. - The company is assigned a 30x PE for 2026, reflecting its leading position in the semiconductor foundry market [5][26].

TSMC (2330.TW) Earnings Call Summary Company Overview - **Company**: Taiwan Semiconductor Manufacturing Company (TSMC) - **Ticker**: 2330.TW - **Market Cap**: NT$38.5 trillion / $1.3 trillion - **Enterprise Value**: NT$36.8 trillion / $1.2 trillion - **12-Month Price Target**: NT$1,720.00 - **Current Price**: NT$1,485.00 - **Upside Potential**: 15.8% Key Highlights from the Earnings Call Industry and Market Dynamics - **AI Demand**: TSMC's management expressed a significantly more positive outlook on AI demand compared to three months ago, indicating exponential growth in AI token demand every three months. The long-term AI revenue CAGR guidance remains at mid-40%, with potential for upward revision in the future [2][25][27]. - **Non-AI Market Recovery**: The non-AI segment has shown signs of recovery after bottoming out, contributing to overall revenue growth [22]. Financial Performance - **3Q25 Results**: - Revenue: NT$989.92 billion (up 6.0% QoQ, 30.3% YoY) - Gross Profit: NT$588.54 billion (GM: 59.5%) - Operating Income: NT$500.69 billion (OpM: 50.6%) - Net Income: NT$452.30 billion (EPS: NT$17.44, up 13.6% QoQ, 39.0% YoY) [21][40]. - **4Q25 Guidance**: Revenue expected to be in the range of US$32.2-33.4 billion, with GM guidance of 59-61% and OpM of 49-51% [39]. Capacity and Technology Developments - **Advanced Packaging (CoWoS)**: TSMC is increasing capacity for CoWoS, expecting a 61% CAGR in capacity and a 54% CAGR in shipments from 2025 to 2027. The annual capacity is projected to reach 1,740k wafers by 2027 [3][31]. - **N2 Technology**: N2 is on track for volume production in 4Q25, with significant demand expected from smartphones and AI/HPC applications. Projections indicate N2 will account for 9.0% of wafer revenue in 2026, higher than N3's initial ramp-up share [23][24]. Financial Guidance Revisions - **Revenue Guidance**: TSMC raised its 2025 revenue guidance to mid-30% YoY growth (in USD), up from 30% previously, driven by strong AI demand [4][22]. - **Capex Guidance**: Slightly increased to US$40-42 billion from US$38-42 billion, with a reduction in GM dilution guidance from overseas fab expansion to 1-2 percentage points [4]. Earnings Revisions - **EPS Revisions**: EPS estimates for 2025, 2026, and 2027 have been raised by 4.9%, 6.9%, and 8.5% respectively, reflecting stronger 3Q25 results and favorable FX rates [44][45]. Risks and Considerations - **Potential Upside in AI Revenue**: Management indicated that while the AI revenue CAGR guidance remains unchanged, there is potential for upward revision, with further details expected in early 2026 [25][27]. - **Market Conditions**: Investors should consider the potential impact of macroeconomic conditions and competition in the semiconductor industry on TSMC's performance [8]. Conclusion TSMC's earnings call highlighted robust growth driven by AI demand, a recovery in non-AI markets, and significant advancements in technology and capacity. The company has raised its revenue and EPS guidance, reflecting a strong outlook for the coming years.

Core Insights - The proliferation of artificial intelligence (AI) is driving exponential growth in power demand across various sectors, from large-scale data centers to edge devices, injecting new vitality into everyday applications [2] - Energy efficiency is crucial for the sustainable growth of AI, as the power consumption of AI accelerators has tripled in five years, and deployment scale has increased eightfold in three years [4] Group 1: TSMC's Strategic Focus - TSMC is prioritizing advanced logic and 3D packaging innovations to address the challenges posed by increasing power demands [6] - The roadmap for TSMC's logic scaling is robust, with N2 expected to enter mass production in the second half of 2025, and N2P planned for next year [6] - Enhancements from N3 and N5 continue to increase value, with speed improvements of 1.8 times and power efficiency improvements of 4.2 times from N7 to A14, while power consumption decreases by approximately 30% per node [6] Group 2: Technological Innovations - N2 Nanoflex DTCO has optimized high-speed, low-power dual-unit designs, achieving a 15% speed increase or a 25-30% reduction in power consumption [8] - Dual-rail SRAM combined with Turbo/Nomin mode has improved efficiency by 10%, while memory computing (CIM) technology offers 4.5 times TOPS/W and 7.8 times TOPS/mm² performance compared to traditional 4nm DLA [9] - AI-driven design tools, such as Synopsys' DSO.AI, enhance power efficiency by 7% in the APR process and 20% in analog design integration with TSMC's API [9] Group 3: Packaging and Integration Advances - TSMC's 3D Fabric technology has shifted towards 3D packaging, including SoIC for die stacking and InFO for mobile/HPC chipsets [9] - The efficiency of 2.5D CoWoS has improved by 1.6 times with a reduction in micro-bump pitch from 45µm to 25µm, while 3D SoIC shows a 6.7 times efficiency improvement [10] - HBM integration technology has advanced, with TSMC's N12 logic substrate providing 1.5 times the bandwidth and efficiency of HBM3e DRAM substrates [12] Group 4: Overall Efficiency Gains - The effectiveness of Moore's Law remains evident, with logic scaling from N7 to A14 achieving a 4.2 times efficiency increase, and CIM technology improving by 4.5 times [17] - Packaging efficiency has improved by 6.7 times from 2.5D to 3D, while photonic technology has enhanced efficiency by 5-10 times [17] - AI has significantly boosted production efficiency, with improvements ranging from 10 to 100 times in various processes [17]