報告_ML_台積電2330_20260713

PDF 原檔：報告_ML_台積電2330_20260713_original.pdf

圖片清單（已驗證 2026-07-15）

原始內容

Taiwan Semiconductor Manufacturing Co.

2Q26 earnings preview: Robust demand and pricing underpin capex expansion

Reiterate Rating: BUY | PO: 3,100 TWD | Price: 2,415 TWD

Solid 2Q26/3Q26 demand; GM resilient through 2nm ramp

We expect TSMC ' s 2Q26 sales tracking to +12% QoQ and could grow 10-15% QoQ in 3Q26, on HPC product refreshes and benefit from price hike in early ' 26. With favorable FX, utilization and pricing partially offset by dilution from 2nm ramp skewed to 2H26 and higher summer electricity cost, its GMs could stay stable at ~67-68% in 3Q26 (vs street/buyside 68-70% expectations). VIS disposal gain could lift NT$1.95 EPS in 2Q26.

Stronger project visibility into 2027 drives capex upside

We expect TSMC ' s sales to grow by 39% YoY in US$ in ' 26 backed by the ramp for new gen GPUs and ASICs, stronger CPUs, Apple ' s product launches and now supplemented by firmer pricing outlook on mature nodes. On solid demand pipeline and tight equipment supply, we expect its capex to reach US$58bn in ' 26 (vs. US$56bn guide) and further grow to US$78bn/US$83bn in ' 27/28 for further clean room and capacity expansion.

Checkpoints: AI demand sustainability and competition

Amid hyperscalers ' need of fund raising for further spend on the AI infrastructure in a component cost inflation environment, TSMC ' s comment on AI investment sustainability and its capex commitment in the next few years could be a bellwether. Structurally, we would focus on its capacity expansion strategy balancing fulfilling customers ' demand due to back-end competition from Intel vs. the business cyclicality in the downturns.

Mid-cycle valuation compelling as EPS upgrades continue

We lift our 26/27/28E EPS from NT$103/NT$150/NT$177 to NT$107/NT$153/NT$178. We keep our Buy rating on TSMC and raise PO to NT$3,100 on 20x ' 27 P/E. While recent street could be aggressive on 2H26 GMs, we believe its current valuation is undemanding at 16x ' 27 P/E (vs. its long term 11-21x) backed by its dominant position in advanced technologies.

This research report provides general information only. No part of this report may be used or reproduced or quoted in any manner whatsoever in Taiwan by the press or other persons without the express written consent of BofA Securities.

>> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst under the FINRA rules.

Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take responsibility for the information herein in particular jurisdictions.

BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Refer to important disclosures on page 20 to 23. Analyst Certification on page 17. Price

13 July 2026

Equity

Haas Liu >> Research Analyst Merrill Lynch (Taiwan) +886 2 2376 3727 haas.liu@bofa.com

Mike Yang >> Research Analyst Merrill Lynch (Taiwan) +886 2 2376 3729 mike.c.yang@bofa.com

Robert Cheng >> Research Analyst Merrill Lynch (Taiwan) +886 2 2376 3731 robert.cheng@bofa.com

Cathy Hsu >> Research Analyst Merrill Lynch (Taiwan) +886 2 2376 3726 cathy.hsu3@bofa.com

See Exhibit 31 for glossary

iQ profile SM Taiwan Semiconductor Manufacturing Co.

Key Metrics

• For full definitions of iQ method SM measures, see page 19.

Company Sector

Semiconductors

Company Description

TSMC was founded in 1987 and is listed in Taiwan (2330TT) and the US (TSM/NYS).TSMC is the largest and global leader in integrated circuit (IC) manufacturing. As a build-to-order foundry, it provides a wide range of valueadd activities: IC manufacturing, mask-making, IC design services, turnkey solutions, and process development. We attribute its success to its proven, winning business model, unparalleled scale advantage, optimized execution, and technology scope and depth. 5 shares = 1 ADR.

Investment Rationale

The ongoing semi content growth in mobile, rise of artificial intelligence (AI), and proliferation of Internet of Things (IoT) should result in sustainable upside in aggregate computing power globally. TSMC, as the leading contract manufacturer of semiconductor chips, is in a good position to capitalize. We are structurally positive on TSMC and expect it to sustain over 15% growth with rising FCF from 2026 onwards.

2Q26 sales/GMs tracking to top its guide; Vanguard disposal gains another EPS lift

We profile our expectations for TSMC ' s 2Q26 earnings on July 16 th . 2Q26 sales are on track to +12% QoQ, at the high-end of its guidance, which we believe is led by continued HPC/AI build strength especially with multiple product upgrades from 5nm/4nm to 3nm and inventory pre-builds on 2nm. Notably, the advanced node supply tightness should be backed by the drivers including 1) accelerators (GPUs and ASICs): NVidia ' s surging demand for Rubin GPU and Blackwell staying high along with AMD ' s MI400 and AWS ' s Trainium3 ramp more than offsetting Google ' s Ironwood TPU mild winddown, 2) CPUs: solid demand for general purpose servers and AI data centers across x86 (AMD ' s Turin and Venice CPUs) and ARM based CPUs (e.g. Nvidia ' s Vera CPU and Google ' s Axion CPU) and 3) networking switch : from Nvidia/Mellanox, Broadcom and Marvell.

On top of the solid advanced node demand and resilient orders from consumer applications ex-smartphones, we see the above seasonal 2Q26 sales also backed by more favorable pricing on better mix and modest benefit from the price hike in the beginning of the year. With sales tracking to the top end of its guidance, we expect its 2Q26 GMs to also reach the high-end its guidance for 65.5-67.5% (BofAe 67.7%).

Exhibit 1: TSMC 2Q26-3Q26 and 2026-27 estimates BofAe vs. street

We lift our EPS estimates for '26/27 to NT$107/153

Source: BofA Global Research estimates, Bloomberg

HPC/Apple lifting 3Q26 sales outlook; resilient GM expectation but below street

For 3Q26, we expect TSMC ' s sales to grow in line with seasonality for +11-15% QoQ (BofAe +11%) even off a high base through 1H26. We model a mild growth in its wafer shipment (BofAe +10%/-18% QoQ for advanced/mature nodes), balancing HPC demand strength and Apple ' s chipset builds for its new product launches and its gradual retirement of 6 ' and 8 ' capacity and effective capacity loss due to equipment movement for the node conversion. The blended ASPs strength (BofAe +9% QoQ) should be the key driver for 3Q26 as shipment mix continues to shift toward advanced nodes and more meaningful benefit from the like-for-like price hike effective from the beginning of 2026 considering 5-6+ months production lead time.

While utilization is trending higher, FX is modestly positive, and pricing environment is turning even more favorable with mature node capacity seeing potential cost inflation, supplemented by the already rising price on the advanced nodes, we model a relatively stable GMs only up 10bps QoQ to 67.8% in 3Q26 (vs. recent street and investors ' expectations at 68-70%). The key factors we consider as mildly negative offset would be 1) higher depreciation: +30-35% HoH in 2H26 due to more overseas and 2nm capacity

BofA GLOBAL RESEARCH

ramp and 2) growing contribution from 2nm still going through yield learning curve. Specifically, the management guided 2-3% margins dilution from 2nm ramp for 2026 and the impact could be concentrated in 2H26 as the volume grows. That said, TSMC ' s GMs in 2H26 could have reached low-70% levels without 2nm ramp, an encouraging milestone reflecting the company ' s structurally higher value to its customers through its strong technology leadership.

Exhibit 2: Our 2026-28E earnings are 8-21% above consensus as we model a higher sales growth and margins

TSMC 2026-28 estimates BofAe vs. Street

Source: BofA Global Research estimates, Bloomberg

2026 sales and margins outlook intact despite weakening consumer demand

Factoring in stronger CPU and AI GPU/ASIC demand outlook, we are lifting our sales expectation for TSMC in ' 26/ ' 27 to +41%/+40% YoY respectively (vs. BofA prior +40%/+39% YoY). More importantly, with utilization staying tighter for longer along with inflationary cost pass through, TSMC should raise its advanced node and packaging pricing by another 5-10% in the beginning of 2027, lifting its GMs to 67%/69% in 2026/27 (vs. BofA prior 66%/68%).

Exhibit 3: TSMC's wafer pricing by advanced vs. mature nodes TSMC's wafer pricing by advanced vs. mature nodes

Source: BofA Global Research estimates

Exhibit 4: TSMC's wafer pricing gap for advanced vs. mature nodes TSMC's advanced node pricing is now 9x higher than mature ones

Source: BofA Global Research estimates

BofA GLOBAL RESEARCH

50%

40%

45%

35%

25%

30%

20%

10%

15%

BofA GLOBAL RESEARCH

BofA GLOBAL RESEARCH

Importantly, we believe the company ' s front-end manufacturing sales growth this year will be largely driven by the blended price hike (BofAe +31% YoY), factoring in 1) 1015% like-for-like price uplift on 5nm and 3nm, 2) the ramp of 2nm through the year, 3) 5-10% like-for-like pricing decline on the mature nodes. In addition, the wafer shipment mix skewed toward advanced nodes plays an important role, with TSMC ' s advanced wafer pricing is now 12x higher than the ones on the mature nodes, accelerating the blended price improvement in the past couple of years.

The wafer shipment will grow mildly YoY in 2026, with advanced node demand mostly offset by the decline in the mature nodes (BofAe -8% YoY shipment) due to its capacity retirement on 6 ' and 8 ' processes. The consumer chipset order cut from March could also affect the wafer output in 2H26, offsetting the fully loaded advanced nodes (BofAe +23% YoY shipment) led by high performance computing applications and high-end mobile chipsets.

Although N2 is the 1 st node using nanosheet technology, it has reached the targeted defect density levels 2 quarters ahead of 3nm. While it still takes a few years for N2 to reach corporate GMs which is trending higher (vs. ~11 quarters for N3), we expect N2/A16 to enjoy a better margin profile vs. 3nm on better yield curve.

Solid technology roadmap and execution easing competition concern

TSMC is pursuing a dual track strategy for its front-end manufacturing, advancing the solution for both its consumer and HPC customers. The nodes targeted for consumer chipsets requiring cost power efficiency and IP reuse will be introduced on an annual basis to match its customers ' yearly product launch schedule. For the HPC applications, the company targets to roll out a new node with biennial cadence, supporting major leaps in performance, transistor density and power density.

Exhibit 5: TSMC/ Intel/Samsung's technology roadmap

TSMC targets to roll out a new node for HPC with biennial cadence, supporting major leaps in performance

Source: BofA Global Research

This is evidenced in its N2 family and below nodes, with N2U ramping in ' 28 for mobile applications and A13 node in ' 29 which will be backward compatible to A14. It will also have A12 node in ' 29 integrated SPR to address power integrity and current delivery constraint suitable for AI/HPC systems. The strategy along with the continued expansion of the derivative offerings for main nodes should position TSMC well to defend its market share with its competitors claiming their progress on the advanced manufacturing.

Specifically, Intel ' s 18A has been in mass production since 4Q25 for its Panther Lake and Clearwater Forest chipsets though yield will not be fully fine tuned until 1Q27 at 2530k WPM capacity scale in its Oregon and Arizona fabs. The follow on derivative technology, 18A-P, has recently started risk production featuring 9% performance gains though may not enter into mass production until 2027 at the earliest.

BofA GLOBAL RESEARCH

Longer term, Intel ' s next major upgrade will be on 14A which is guided to start risk production in 2028 for commercialization in 2029. It is important to note A14 will be the first major node Intel provides with its external foundry customers and 0.9 PDK is targeted to be shipped in 4Q26.

For Samsung, at its recent SAFE Forum in 2Q26, the company reaffirmed four generations of 2nm roadmap, including SF2 which has been in production since 0225, SF2P in 2026, SF2P+ in 2027-28 and SF2X (no firm date). Notably, the previously announced derivative technologies, including SF2Z featuring backside power for HPC applications and SF2A for automotive applications, were not included in its latest roadmap which should be folded as part of its SF2P+ offerings. With a modest delay for its 2nm progress, the company also pushed out its SF1.4 mass production to 2029 (vs. original 2027).

On the capacity and yield planning for its advanced nodes, Samsung noted its SF2 yield is still at 50-60% levels but confirmed its SF2P+ tooling has been in installation through 2026 for mass production in 2027 in its Taylor fab. Its capacity expansion in the US along with the existing 20k WPM capacity on SF2 in Korea put the company ' s capacity installed base on the node at 35k WPM by the end of 2027.

Exhibit 6: TSMC & Intel's transistor density comparison

Transistor density gap could be even widened to ~50%/~60% for TSMC's upcoming A16/A12 nodes when comparing with Intel 18A-P/14A

Source: BofA Global Research

BofA GLOBAL RESEARCH

Based on the capacity planning and technology roadmap, we believe TSMC retains the leadership through its roadmap and yield execution and scale. Specifically, the company ' s transistor density has been outperforming by ~30% for its N3/N3E vs. Intel 3/18A. With similar production timing and targeted applications, we estimate the transistor density gap could be even widened to ~50%/~60% for TSMC ' s upcoming A16/A12 nodes when comparing with Intel 18A-P/14A.

In addition to delivering superior specs on the power, performance and area, TSMC ' s execution reliability has become self-reinforcing: superior yield and on-time delivery on the leading edge technologies win customer trust. The profitable business opportunity then translates cash flow funds to the next leg of capex cycle required for further technology and capacity lead. In contrast to TSMC ' s 150-200k+ WPM capacity scale on every major node at mature yield, Samsung and Intel running their business at 15-20% of the company ' s scale at 60-70% yield is not sufficient to meet their own demand nor the stringent requirement from the external customers especially as the opportunity cost gets higher on the advanced manufacturing.

On the back-end packaging and testing solutions, TSMC provides its customers with higher complexity of the system level integration across advanced logic dies, CPO components and HBM through its CoWoS and SoIC technologies for the compute density and efficiency optimization. To accommodate larger size package, it is rolling out 5.5-reticle CoWoS in ' 26 with yield reaching 98%+ and will push the technology to 9.5x/14x reticle limit in ' 27/ ' 28

Longer term, the company develops SoW for up to 40-reticle packaging and CoPoS potentially for late ' 28 / early ' 29 mass deployment. The company is also upgrading CPO with COUPE solutions from PCB and substrate to interposer for 10x power efficiency uplift and 20x latency reduction though the contribution would still be limited based on our estimate at least through ' 27 before accelerating to 1% of its sales in ' 28 with more scale up switch adoption.

While CoPoS mass ramp is toward ' 29, the CoWoS upgrade at good yield should keep its position vs. Intel ' s EMIB-T currently at 80-85% pilot yield seeing risk of losing business if it fails to deliver 95% mass production yield by mid-' 27.

Capex track slightly ahead of its guide for 2026 and will stay aggressive in '27-28

Based on our bottom up capacity analysis across front-end manufacturing and back-end packaging, TSMC ' s capex spending is tracking to US$58bn for 2026 (vs. its narrowed guidance of US$56bn). In addition to the earlier tool pull-in schedule due to tighter equipment supply with memory makers expanding, the fast-growing capex should reflect the rising cost per 1k WPM on the advanced nodes vs. mature nodes, with the equipment cost per 1k WPM advanced wafer capacity expansion has grown from US$156mn in 2023 to US$241mn in 2025. Even factoring in more common use of equipment on the advanced nodes, the capex/1k WPM advanced capacity could further rise by 20% to US$289mn in 2027 with the technology architecture upgrade.

On top of the investment in the core front-end manufacturing, we expect the company to slightly outspend in the back-end packaging and estimate it is at the upper half of its guidance for 10-20% total capex, mainly for more aggressive capacity expansion to meet its customers ' demand amid growing competition from Intel ' s EMIB-T solution and technology innovation. On the other hand, the maintenance capex could be reduced for specialty technologies as the company gradually retires the equipment.

Exhibit 7: TSMC's total Capex vs. equipment spending per k WPM capacity addition

TSMC spend 1-2x more on 1k WPM expansion due to its shift to advanced nodes in recent years

Source: Company Data, BofA Global Research estimates

BofA GLOBAL RESEARCH

Considering the capex required for further 3nm capacity expansion in the additional phases in its Tainan megafab, Arizona and the recently announced 2 nd fab in Kumamoto on strong AI/HPC/automotive demand, ramping scale for 2nm family including A16, R&D on A14 supplemented by multiple back-end packaging technologies in progress (e.g. CoWoS, CoPoS, SoIC, WMCM) and lower capex efficiency in its US operation, our bottom up model shows TSMC ' s capex could be US$78bn/US$83bn in 2027/28 at a CAGR of 23% CAGR from 2026-28.

Exhibit 8: TSMC's revenue and Capex trend

TSMC's sales should still outgrow Capex to keep its capital intensity manageable

Source:

Company Data, BofA Global Research estimates

BofA GLOBAL RESEARCH

While the surge in headline capex hikes could lead to concern on accelerating depreciation, we estimate it will only grow at 17% CAGR from 2026-28 due to modestly higher portion of the spending towards facility and clean room with much longer depreciation cycle than equipment. This should keep the depreciation still undergrowing its sales of +28% CAGR, sustaining GMs expansion to 68% levels by 2028.

Exhibit 9: TSMC Capex spending breakdown by technology TSMC spends the most on advanced front-end but packaging is outgrowing

Source: Company Data, BofA Global Research estimates

Exhibit 10: TSMC's depreciation trend

TSMC's depreciation growth will be led by equipment

BofA GLOBAL RESEARCH

Source: Company Data, BofA Global Research estimates

BofA GLOBAL RESEARCH

We keep our Buy rating on TSMC and lift PO from NT$3,060 to NT$3,100 on 20x '27E P/E (unchanged); our US$ADR PO remains $590. Our EPS for 2026/27/28 are now NT$107/153/178 (vs. NT$103/150/177 prior) as we factor in stronger CPU and AI GPU/ASIC demand outlook. Its current valuation seems undemanding at 17x '27E P/E (vs. its long term P/E average of 11-21x).

Capacity expansion accelerates across advanced front-end and back-end

As TSMC is in the process to retire a portion of its equipment on 6 ' , 8 ' and mature 12 ' processes while still adding the capacity on the advanced nodes, we estimate the company ' s total front-end manufacturing capacity will drop by 1% YoY in 2026.

Exhibit 11: TSMC's year-end capacity by node for 20nm and below TSMC will expand aggressively on 3nm and 2nm through 2027

TSMC's year-end capacity by node 20nm and below (k WPM, 12" equivalent)

Exhibit 12: TSMC's advanced node capacity as % of its installed base TSMC's advanced nodes will reach 40% of its total capacity

TSMC's capacity (k WPM, 12" equivalent) TSMC's 7nm and below nodes % of total capacity

Source: Company Data, BofA Global Research estimates

The trend could be more stable into 2027-28 as TSMC strives to optimize its capacity mix and across node conversion to accommodate its customers ' demand especially on the leading edge technologies, with its advanced capacity set to grow by 10% CAGR from 2025-28 balanced by the mature capacity reduction at -8% CAGR.

Based on our estimate, TSMC ' s capacity for 7nm and below nodes will grow from 320k WPM per month in 2023 to ~680k WPM by 2028 at a 16% CAGR, through organic expansion and efficient conversion from higher equipment commonality, cross technology planning and AI productivity gains (e.g. tool idle time and chamber cleaning schedule optimization). This will also support the mix of 7nm and below capacity climb toward 40-45% of its total capacity (vs. 24% in 2023). By region, we expect the capacity expansion through 2027 to enable its overseas fabs to account for 17% of TSMC ' s total capacity by 2028 (vs. 7% in 2020) and similarly for the advanced node capacity (vs. ~0% in 2023), mainly in Arizona and Kumamoto.

Specifically, we believe the company is on track to target on 25% CAGR capacity expansion for its 5nm and 3nm from ' 22-27. We model its 3nm capacity will reach 190k/230k WPM by 4Q26/27. On N2 family, TSMC plans to grow capacity by 70% CAGR from ' 26-28, with 1 st year ramp delivering 45% more capacity vs. 3nm as it rolls out 5 fabs at once.

BofA GLOBAL RESEARCH

Exhibit 13: TSMC 5nm and below wafer consumption/supply/utilization

Utilization of 5nm and blow to remain high

Source: BofA Global Research estimates

BofA GLOBAL RESEARCH

On the demand, with 5nm and 3nm generating ~50% of TSMC ' s revenue in 2025, we analyze the supply and demand landscape through our bottom-up capacity model and wafer consumption by the company ' s major customers for their major products on these nodes. Based on our estimate, the utilization for 5nm and below nodes could stay high at least 90% if we only consider the effective capacity which is especially important during the period of frequent capacity conversion and new node ramp in the next few years.

Exhibit 15: Major 5nm and below wafer demand at TSMC

Server CPU demand outgrows overall major advanced chipsets

BofA GLOBAL RESEARCH

We would note 3nm, as a sweet spot for high performance computing, networking and flagship smartphone chipsets, could see the utilization staying close to full even with continued expansion on strong project pipeline, sustaining continued price hikes even in 2027 following the price surge in 2025-26. The node could be even more profitable from 2028-29 when the fixed cost starts rolling off following 5 year depreciation cycle.

Exhibit 16: Major 5nm and below wafer demand mix at TSMC Server CPU accounts for 13% in 2028

Source: BofA Global Research estimates

BofA GLOBAL RESEARCH

Exhibit 14: TSMC 3nm wafer consumption/supply/utilization

TSMC 3nm to see utilization staying close to full

BofA GLOBAL RESEARCH

Source: BofA Global Research estimates

Exhibit 17: TSMC 3nm wafer consumption by customers

Mediatek and Qualcomm should remain the largest customers following Apple's migration to 2nm

Source:

BofA Global Research estimates

BofA GLOBAL RESEARCH

On the back-end packaging, with surging server CPU demand on top of the already strong order backlog for GPUs and ASICs, we estimate the industry ' s CoWoS supply will need to grow by 52% CAGR from 2026-28. TSMC will still lead the capacity expansion from 120k WPM in 4Q26 to 180k WPM in 4Q27, while the OSATs will also grow their portion of the supply with ASE and Amkor adding capacity to 70-75k WPM (vs. 30-35k in 4Q26) and 25-30k WPM (vs. 15-20k by 4Q26) in 4Q27 respectively. Specifically, while TSMC should still lead the supply for complex GPU and ASIC packaging, ASE grows as a major 2 nd source with its capacity share growing from 18% of the industry in ' 26 to 29% in ' 27 and proven track record with as the major CoWoS full process server provider for AMD ' s Venice server CPU.

Exhibit 18: Industry CoWoS-R/L supply/demand CoWoS-R/L utilization should stay at high levels

Industry CoWoS-R/L wafer supply/demand (k WPQ) CoWoS-R/L utilization

Source:

BofA Global Research estimates

BofA GLOBAL RESEARCH

We estimate TSMC ' s SoIC capacity will reach 20k WPM by 4Q26 and will need to grow to 35k WPM by 4Q27 and further to 50k WPM by 4Q28 with the applications proliferating from AMD ' s GPUs to Apple ' s M-series CPUs in 2026, hyperscalers ' customized ARM based server CPUs in 2027 and adoption by Nvidia for its Feynman GPU along with the inflection of CPO penetration in 2028.

Exhibit 19: Industry CoWoS demand CoWoS demand should remain strong through 2028

BofA GLOBAL RESEARCH

Similar to CoWoS, the SoIC technology could be even more important for TSMC going forward and the capacity ramp could be steep given much faster data transmission required for the HPC chipsets across CPUs, GPUs, AI accelerators and networking switches. At full utilization, we estimate SoIC could contribute US$2516mn annually to TSMC in 2028 (1% of the company ' s total sales)

Exhibit 20: TSMC SoIC supply/demand trend

TSMC's SoIC capacity will reach 20k WPM by 4Q26 and will need to grow to 35k WPM by 4Q27

Source: Company Data, BofA Global Research estimates

BofA GLOBAL RESEARCH

TSMC valuation reasonable and has room to re-rate with its HPC customers

Exhibit 21: TSMC's P/E valuation band

TSMC's share at 17x '27E P/E is undemanding

Source: BofA Global Research estimates, Bloomberg

BofA GLOBAL RESEARCH

TSMC ' s current valuation remains well supported when viewed through both its historical context and its relative positioning vs. its customers. In the past decade, TSMC ' s forward P/E has averaged ~16x with a range of 11-21x through the cycles.

Exhibit 22: TSMC's valuation based on BofA estimates

TSMC's valuation of 17x '27E P/E is at the middle of its historical 11-21x range

BofA GLOBAL RESEARCH

Exhibit 23: TSMC's P/E trend vs. its customers

TSMC customers' P/E is now at 50% premium to TSMC vs. 22% average

Source: BofA Global Research, Bloomberg

BofA GLOBAL RESEARCH

The relatively more modest valuation improvement for TSMC also contrasts with its customers ' more pronounced re-ratings. Based on our analysis of forward P/E spreads, TSMC ' s major customers usually have a 22% average premium vs. TSMC in the long term though the current level is at 45%, suggesting TSMC ' s valuation has been lagging.

Specifically, the valuation deviation for TSMC ' s HPC customers vs. the company has widened with 100-150% valuation premium vs. TSMC at this stage (vs. historical average of 52%). We believe this is driven by a surge in valuation for the direct beneficiaries from AI data center deployment, including the companies designing GPUs, ASICs and networking chipsets.

Exhibit 25: TSMC's consensus earnings vs. P/E trend

TSMC's share price strength only driven by earnings upgrade so far

Source: BofA Global Research, Bloomberg

Exhibit 24: TSMC's P/E trend vs. its HPC customers

HPC fabless are the main driver for valuation premium at 100%

BofA GLOBAL RESEARCH

Source: BofA Global Research, Bloomberg

BofA GLOBAL RESEARCH

It is also noteworthy that, while TSMC ' s share performance since 2H23 has been solid, it is predominantly driven by the earnings upward revisions rather than multiple expansion.

The company ' s NTM P/E has remained largely stable, only lifted to 18x in the past 2 years vs. its long-term ~17x levels. The company ' s ADR though has been performing better as it attracts a broader investor base vs. common share, with its premium still at 19% (vs. the long term average 8%) and at 21x 2027E consensus P/E.

With its firmer technology leadership, this should bode well for the company ' s earnings upgrade cycle and its share should also be re-rated at least 20x NTM P/E (24x P/E for ADR factoring the premium), back closer to its customers and the broader ecosystem.

Exhibit 26: TSM ADR 1-year forward P/E vs. SOX premium

SOX index P/E following recent rally is back to 3% premium vs. TSM ADR, in line with long term average

Source: BofA Global Research, Bloomberg

Exhibit 27: TSM ADR conversion price vs. common share and premium TSM ADR premium is higher than common historical level at 15%

BofA GLOBAL RESEARCH

Source: BofA Global Research, Bloomberg

BofA GLOBAL RESEARCH

Exhibit 28: TSMC's quarterly and annual income statement TSMC's quarterly and annual income statement

Source: Company data, BofA Global Research

BofA GLOBAL RESEARCH

Exhibit 29: TSMC's quarterly and annual balance sheet

TSMC's quarterly and annual balance sheet

BofA GLOBAL RESEARCH

Source: Company data, BofA Global Research

Exhibit 30: TSMC's quarterly and annual cash flow

TSMC's quarterly and annual cash flow

Source: Company data, BofA Global Research

BofA GLOBAL RESEARCH

Exhibit 31: Terms and definitions

Glossary of abbreviations/acronyms

Source:

BofA Global Research

BofA GLOBAL RESEARCH

Price objective basis & risk

Taiwan Semiconductor Manufacturing Co. (TSMWF / TSM)

Our PO for TSMC is NT$3,100 per share (US$590 per ADR), based on 20x 2027E P/E. TSMC's valuation has traded in the range of 10-26x PE from 2017. 20x is in the mid to high end of the historical range, above the average P/E of 18x. We think a PE above the average is justified given TSMC's enhanced industry position and mid-40% 5-year CAGR in AI should underpin a rerating

Downside risks to our price objective are: (1) greater-than-expected slowdown in global smartphone/consumer electronics demand, (2) Intel's potential insourcing strategy and ambitions in foundry service, (3) execution risks on advanced nodes, and (4) higher than expected tariffs.