TSMC_ Higher capex and sustainable growth; reiterate OW

TSMC Conference Call Summary Company Overview - Company: TSMC (Taiwan Semiconductor Manufacturing Company) - Ticker: 2330.TW - Industry: Technology Semiconductors Key Points Capacity Expansion and Capital Expenditure - TSMC is increasing its capital expenditure (capex) estimate for 2025 from US$35 billion to US$38 billion due to strong demand in AI semiconductors and advanced packaging technologies [2][3][38] - The company plans to expand its CoWoS (Chip on Wafer on Substrate) capacity to 80k by the end of 2025, pulling the expansion forward from 2026 [2][8] - TSMC's 3nm capacity is expected to grow from 90k this year to 120k next year, while 2nm capacity is projected to increase from 10k to 50k [3][20] Revenue Growth Projections - TSMC anticipates a 15-20% revenue CAGR from 2024 to 2028, supported by strong AI semiconductor demand [2][4][7] - The company expects AI semiconductor revenue to contribute 20% of its total revenue by 2027 [33] Market Demand and Customer Insights - TSMC is seeing robust demand for AI compute, particularly from Nvidia, which is driving the need for increased CoWoS capacity [2][6][8] - Intel is expected to contribute US$8 billion to TSMC in 2025, doubling its contribution from 2024 [7] Pricing Strategy and Gross Margin - TSMC has confirmed price hikes for AI semiconductors and CoWoS by 10%, HPC by 6%, and consumer products by 3% [27] - The company aims to achieve a gross margin of over 55% in 2025, with a gradual increase towards 60% by 2028-2030 [27][38] Financial Metrics and Valuation - TSMC's price target has been raised from NT$1,220 to NT$1,280, reflecting updated earnings estimates for 2025 and 2026 [2][38] - The company’s earnings per share (EPS) estimates for 2025 have been increased to NT$54.79, with a projected EPS of NT$70.64 for 2026 [5][38] Competitive Positioning - TSMC is positioned as a long-term winner in the AI semiconductor space, with expectations that most AI chips will be manufactured using its leading-edge foundry services [33] - The company is focusing on maintaining its competitive edge through technology leadership and cost efficiency [20][27] Risks and Considerations - Potential risks include competition from other foundries and the impact of global semiconductor demand fluctuations [49] - TSMC's ability to manage costs and maintain margins amid rising capex and pricing pressures will be critical for sustaining growth [27][33] Additional Insights - TSMC's management has indicated that the company is in a fast growth stage, with strong capacity expansion and a focus on AI and HPC customers [4][6] - The semiconductor industry is currently experiencing a downcycle, but TSMC's defensive nature and quality are expected to provide resilience [6][48] This summary encapsulates the key insights from TSMC's recent conference call, highlighting the company's strategic initiatives, financial outlook, and market positioning within the semiconductor industry.