The demand for AI Chips is exploding, and the high-performance computing market is thriving. By 2025, $Taiwan Semiconductor (TSM.US)$ can it still maintain its king status in the chip foundry industry.

Analyst Charlie Chan from Morgan Stanley estimates that due to seasonal impacts from the iPhone, Taiwan Semiconductor's revenue in the first quarter will decrease by 5% compared to the previous three months, and believes that the company's guidance for 2025 will be relatively conservative, then exceed expectations.

"The expectation is that Taiwan Semiconductor's sales growth in 2025 will be set at the low end of a 20% year-on-year growth range, while the market generally anticipates the high end of 20%. Taiwan Semiconductor usually gives a conservative forecast at the beginning of the year and then exceeds expectations."

Goldman Sachs expects that in the first quarter of 2025, Taiwan Semiconductor's revenue will only decline by 2.2% quarter-on-quarter, and that its total revenue for 2025 will achieve a year-on-year growth of 26.8%, making it one of the large investment banks with a relatively optimistic outlook.

UBS Group adjusted Taiwan Semiconductor's sales estimate for the first quarter of 2025 to a quarter-on-quarter decrease of 6%, down from the previous estimate of an 8% decline, and indicated that driven by strong demand in high-performance computing (HPC) and Cloud AI, Taiwan Semiconductor's revenue in 2025 is expected to achieve significant growth of 25%.

Goldman Sachs: Taiwan Semiconductor's revenue may grow by 26.8% in 2025, driven by advanced processes and AI demand for long-term growth.

Goldman Sachs expects Taiwan Semiconductor to continue maintaining strong growth momentum.

Goldman Sachs predicted in a Research Report released on the 3rd that Taiwan Semiconductor's revenue will hit a historical high in 2025, achieving a year-on-year growth of 26.8%, reaching 418 billion new Taiwan dollars, with revenue in 2024 at 363.7 billion new Taiwan dollars. This growth is primarily driven by advanced process technology and strong demand for AI.

The report points out that the price increases for advanced process products (such as 3nm and 5nm) and CoWoS (Chip-on-Wafer-on-Substrate technology) will significantly enhance Taiwan Semiconductor's profitability. It is expected that the gross margin in 2025 will rise from 56.1% in 2024 to 59.3%.

"Samsung and Intel face challenges in advanced processes, therefore we predict that the prices at the 3nm/5nm nodes will rise by mid-to-high single-digit percentages, while the price increase for CoWoS technology is expected to exceed 10%."

Although the first quarter is typically a traditional off-season for the semiconductor industry, the report predicts that Taiwan Semiconductor's revenue will only decline by 2.2% quarter-on-quarter in the first quarter of 2025, far better than the average decline of 5% over the past decade. Meanwhile, the gross margin is expected to remain high at 58.9%.

Goldman Sachs stated that Taiwan Semiconductor may adjust its long-term growth target at the upcoming Analyst meeting. Currently, the company management anticipates a compound annual growth rate (CAGR) of 15%-20% for revenue during the period from 2021 to 2026. Given the good market prospects, this target is expected to be maintained for the next five years.

Regarding market concerns about Taiwan Semiconductor's expansion plan in the USA, the report notes that the planned second and third wafer fabs in the USA are expected to start mass production in 2028 and 2030, respectively. Management may update related progress at the Analyst meeting.

Goldman Sachs raised the Target Price for Taiwan Semiconductor, adjusting it from 1320 New Taiwan Dollars to 1355 New Taiwan Dollars within 12 months. As of the time of publication, $Taiwan Semiconductor (TSM.US)$ Pre-market up 3%, reported at 215 dollars, stock price exceeds the previous high of 211.935 dollars.

UBS Group: TSMC's revenue is expected to grow by 25% in 2025, with HPC and Cloud AI as the main driving forces.

In a Research Report released on the 6th, UBS Group pointed out that driven by strong demand in high performance computing and Cloud AI, TSMC's revenue in 2025 is expected to achieve a significant growth of 25%, reaching NT$ 3,611.2 billion.

The main drivers of revenue growth come from the HPC sector, while growth in mobile and Consumer products may accelerate due to inventory management and pre-emptive stocking ahead of trade tariffs.

UBS Group expects that TSMC will announce its 2024 fiscal year fourth quarter Earnings Reports during a conference call on January 16, with total revenue for 2024 projected to be about NT$ 2,881.5 billion, a year-on-year increase of 33%.

In terms of profitability, UBS Group predicts that TSMC's gross margin for the full year 2025 will reach 58.5%, higher than the 56.0% of 2024; and it is expected that the gross margin will gradually improve to 59%-60% in the second half of 2025.

The report also analyzes the key driving factors for TSMC's future growth:

• HPC Business: TSMC's HPC revenue is expected to reach $6.27 billion in 2025, a significant growth of 44.4% compared to $4.34 billion in 2024, with market share rising from 68.6% in 2024 to 76.6% in 2025.

• Mobile Business: Revenue from mobile products is expected to reach $3.37 billion in 2025, a year-on-year increase of 10%, with market share rising from 77.9% in 2024 to 79.8%.

• Prospects for Cloud AI: To meet the strong demand in the Cloud Computing and AI markets, Taiwan Semiconductor plans to double its CoWoS (Advanced Packaging Technology) capacity to 80k WPM by the fourth quarter of 2025.

• Diverse customer base: Apple's sales contribution is expected to decrease from 23% in 2024 to 20% in 2025, while $NVIDIA (NVDA.US)$the contribution rate will increase to 17%, and Intel is expected to contribute 9%-10%, resulting in a more diversified customer structure.

UBS Group expects that in 2026, US trade tariffs may impact technology demand and the Semiconductors cycle. Taiwan Semiconductor is building wafer fabs in the USA and Japan, but the initial profitability of overseas plants may be limited.

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Editor/Rocky