TSMC-Another 30% growth year in 2026E driven by AI; raise PT to NT$2,100

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]