Source: Hard AI
Demand prospects for artificial intelligence are expected to be more positive, and Goldman Sachs drastically raised TSMC's CoVos production capacity expectations.
In the latest report, Goldman Sachs analyst Bruce Lu will maintain TSMC's “buy” rating and raise the target price from NT$760 to NT$975, meaning that TSMC still has 24% room to rise from Friday's closing price.
In terms of production capacity, Goldman Sachs raised its 2024-2025 CoWOS (Chip on Wafer on Substrate) production capacity forecast from 304,000 to 441,000 to 319,000-600,000, and production capacity is expected to exceed expectations and double by 2025. This means that CoWoS production capacity will increase by 122% this year and 88% year over year next year, doubling for two consecutive years.
In terms of capital expenditure, Goldman Sachs raised its 2025-2026 annual capital expenditure forecast from US$35 to US$36 billion to US$360-38 billion, reflecting higher demand for investment in advanced nodes.
In addition, Goldman Sachs also anticipates that the pace of adoption of N2 (2 nm process technology) technology will accelerate as customer demand increases, and demand for advanced packaging (particularly CoWoS) will be stronger.
As far as the AI industry is concerned, Goldman Sachs raised its profit forecast for 2025 by 3-14% for the major AI companies already covered (including TSMC, MediaTek, Sun Moon Light, etc.), reflecting that the AI trend will bring stronger growth prospects for many years.
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Production capacity, performance, and profit expectations all increased
Earlier, Bruce Lu mentioned in his report that when the supply of AI chips is in short supply, the most direct way to solve the shortage of AI chips in the short term is to increase CowOS production capacity, and TSMC is the core of this.
Lu once again reiterated in this report that the production capacity of CowOS packaging technology continues to be the biggest bottleneck limiting the supply of AI chips, and it is also the key to whether AI chip demand can be met.
Given the prospects for AI demand to continue to heat up, Goldman Sachs expects:
TSMC's CoWoS production capacity will double in 2025, and overall demand will still exceed production capacity plans. By 2026, capacity growth is expected to continue to be strong to catch up with demand.
In terms of performance, Goldman Sachs raised TSMC's 2024-2025 earnings per share forecast by 2.6% to 2.7%. According to the report, the increase in TSMC's performance is mainly due to three points:
1) Stronger demand prospects for artificial intelligence;
2) Higher CoWoS production capacity;
3) Because demand prospects for AI inference and edge AI are better, the utilization rate (UTR) of N3/N5 is expected to be higher:
The UTR of the 2024-2025 N3 process node will be raised from 70%-83% to 76%-85%; the UTR of the 2024-2025 N5 process node will be raised from 99%-100% to about 101%.
In terms of profit, Goldman Sachs raised its forecast for TSMC's price-earnings ratio for the 2025 fiscal year to 20 times. The report states:
Our target price-earnings ratio is to achieve 20 times the price-earnings ratio in FY2025 (originally 18 times, 0.5 percentage points higher than the 5-year trading average);
Based on TSMC's compound annual profit growth rate of 19.3% in 2018-2021, we forecast a four-year compound annual growth rate of 19.6% between 2023-2026.
Goldman Sachs continues to be optimistic about TSMC, stating in the report:
“Because we believe that the company's solid technology leadership and execution make it more capable than its peers to seize long-term structural growth opportunities in the industry, particularly in areas such as 5G/AI/HPC/EV.”
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