According to the Zhitong Finance APP, the chip manufacturing giant Taiwan Semiconductor (TSM.US), known as the "King of Chip Foundry," saw its stock price soar more than 6% at the beginning of trading in the US stock market, reaching a historic high. As of the time of writing, the price of Taiwan Semiconductor's ADR in the US has risen by 4.42% to $217.88. Benefiting from the huge A-series chip orders from Apple's iPhone 16 high-end models, the strong demand for AI GPUs revealed in the recent earnings reports from Broadcom and Marvell Technology, as well as the explosive demand for AI GPUs with Blackwell architecture expressed by contract manufacturer Foxconn, which is an core foundry for Apple chips and AI GPUs and AI ASICs, the stock price of Taiwan Semiconductor has continued to rebound since December, and it appears the upward momentum is far from over.

Furthermore, the significant increase in contract prices for chip foundry at 5nm and below, as well as the advanced packaging prices for CoWoS and others, is also a core catalyst for Taiwan Semiconductor's recent stock price rebound. According to media reports, Taiwan Semiconductor plans to adjust pricing for 3nm, 5nm, and the upcoming mass production of 2nm advanced chip process orders in 2025, with increases expected between 3% and 8%, particularly for AI-related high-performance computing chip foundry orders, which may see price hikes of 8% to 10%; Taiwan Semiconductor also plans to raise prices for advanced packaging services such as CoWoS significantly, with increases expected between 15% and 20%.

Taiwan Semiconductor is currently the largest contract chip foundry in the world. As the frenzied wave of AI deployment shows no signs of cooling and continues to sweep globally, its clients like NVIDIA, AMD, Broadcom, and other chip giants have benefited from the surge in demand for the most essential infrastructure for AI—the AI chips. The significant increase in contract foundry orders from these chip giants to Taiwan Semiconductor has driven its continued robust expansion of performance beyond expectations since last year. This is also an important logical support for the continuous record highs of Taiwan Semiconductor's stock price in Taiwan and its ADR in the US since last year.

For a long time, Taiwan Semiconductor has been the most essential chip manufacturer for fabless chip design firms such as Apple, NVIDIA, AMD, and Broadcom, especially in processing AI chips for data center servers for NVIDIA and AMD, and custom-made AI ASIC chips for technology giants like Google, Microsoft, and Amazon. These are considered the core hardware infrastructure that drives the massive AI training/inference systems behind generative AI tools like ChatGPT and Sora.

With decades of chip manufacturing technology accumulation in the semiconductor field, TSMC has long been at the forefront of global chip manufacturing technology improvements and innovations (pioneered the FinFET era and drove the opening of the 2nm GAA era), leading global chip manufacturers with advanced processes and packaging technologies, with extremely high yields dominating the vast majority of global chip manufacturing orders, especially for 5nm and below advanced process chip manufacturing orders.

More importantly, Taiwan Semiconductor currently dominates almost all high-end chip packaging orders at 5nm and below, thanks to its industry-leading 2.5D and 3D chiplet advanced packaging, and this advanced packaging capacity is far from meeting demand. The long-standing supply shortage for NVIDIA's H100/H200 and Blackwell production capacity is entirely constrained by Taiwan Semiconductor's CoWoS packaging capacity at the 2.5D level. Currently, chip giants like Apple and AMD are shifting to Taiwan Semiconductor's advanced packaging capacity at the 3D level, which may further drive the supply-demand imbalance in Taiwan Semiconductor's advanced packaging capacity.

The current demand for AI Chips is extraordinarily strong and may remain so for a long time in the future. AMD CEO Lisa Su recently stated at a product launch that the demand for Datacenter AI Chips, including AI GPUs, far exceeds expectations, and it is anticipated that by 2027, the market for Datacenter AI Chips will reach 400 billion USD, further rising to 500 billion USD in 2028, which implies a compound annual growth rate of over 60% for the Global Datacenter AI Chips market from the end of 2023 to 2028.

AI ASIC has triggered a new wave of investment in chip stocks, with Taiwan Semiconductor being the biggest winner.

Broadcom (AVGO.US), the core supplier of Ethernet Switch Chips for large Global AI Datacenters and the key player in the AI Hardware field for AI ASIC Chips, has become the focal point of unprecedented investments surrounding AI since 2023, with its investment enthusiasm historically only second to AI chip leader NVIDIA. Following the announcement of strong growth in December and extremely optimistic projections for the AI ASIC chip market, its stock price surged over 20% in a single day on the US stock market, pushing its Market Cap over the significant milestone of one trillion USD.

Broadcom has demonstrated through solid performance that not only is the demand for NVIDIA AI GPUs incredibly strong, but another distinct route for the core foundational hardware of AI—AI ASIC demand—may grow even faster than AI GPU demand, attracting global funds into investments related to AI ASICs—such as A-share markets and individual stocks highly related to AI ASIC concepts, as well as publicly listed companies involved in the AI ASIC chip Industry Chain with Broadcom or Marvell Technology—like Taiwan Semiconductor, known as the 'King of Chip Manufacturing,' and Advantest, the Japan-based manufacturer of AI ASIC chip testing equipment, working with Broadcom to create the most typical AI ASIC—TPU (Tensor Processing Unit)—for Google, along with BE Semiconductor, a key supplier in the Hybrid Bonding area critical for advanced chiplet packaging.

Broadcom's December Earnings Reports indicate a year-on-year surge of 220% in AI-related revenue (Datacenter Ethernet Chips + AI ASICs), totaling 12.2 billion USD for the entire fiscal year. More importantly, Broadcom CEO Hock Tan stated during the earnings call that revenue from AI products is expected to grow by 65% year-on-year in the first quarter of fiscal year 2025, far exceeding the company's overall semiconductor business growth rate of approximately 10%, and it is projected that by fiscal year 2027, the potential market scale for AI components (Ethernet Chips + AI ASICs) created for Global Datacenter operators will reach as high as 90 billion USD. Hock Tan emphasized during the call: 'The opportunities related to AI chips in the next three years are incredibly vast.'

Major Wall Street firm Morgan Stanley recently stated in a report that Taiwan Semiconductor and its supply chain partners (such as ASE, KYEC, etc.) will benefit from the rapid growth of AI ASIC design and manufacturing. Currently, the two major dominant forces in the AI ASIC field—Broadcom and Marvell Technology—are both major clients of Taiwan Semiconductor, and it is not an exaggeration to say that their production capacity for AI ASIC chips is entirely dependent on Taiwan Semiconductor, which is also the core logic behind Morgan Stanley's Call on Taiwan Semiconductor's stock price rising to 1388 New Taiwan Dollars, significantly exceeding the current stock price.

The company is working with large cloud computing clients to develop customized AI chips. Currently, there are three giant cloud clients who have established their multi-generational ‘AI XPU’ roadmap and plan to deploy at different speeds over the next three years. It is believed that by 2027, each of them plans to deploy a 1 million XPU cluster within a single architecture. Here, XPU refers to a processor architecture with strong scalability, typically referring to AI ASICs, FPGAs, and other custom AI accelerator hardware, aside from NVIDIA’s AI GPUs.

Wall Street is bullish on Taiwan Semiconductor, with ADR in the US potentially aiming for the 250 USD mark.

Goldman Sachs, a major player on Wall Street, stated that Taiwan Semiconductor is likely to adjust its long-term growth targets at the upcoming Analyst meeting, mainly benefitting from strong demand for advanced processes of 5nm and below, especially driven by AI-related chips. Currently, the company's management expects a compound annual growth rate (CAGR) of 15%-20% in revenue from 2021 to 2026. Given the promising market outlook, Goldman Sachs anticipates that this target is likely to be raised or extended over the next five years.

In response to market concerns regarding Taiwan Semiconductor's expansion plans in the USA, Goldman Sachs pointed out in a recent report that the planned second and third wafer fabs in the USA are expected to begin mass production in 2028 and 2030 respectively. The management of Taiwan Semiconductor may update relevant progress in the Analyst meeting, and Goldman Sachs expects that the first wafer fab in the USA will likely secure some chip orders from American tech giants like Apple and NVIDIA in 2025.

At the same time, Goldman Sachs believes that the competitive environment for Taiwan Semiconductor has become more favorable, as Samsung Electronics and Intel are facing difficulties with chip yields while transitioning to advanced process nodes of 3nm, 4nm, or 5nm. Therefore, Goldman Sachs predicts that starting this year, prices for 3nm and 5nm high-end chip nodes will increase in the mid-single-digit percentage range, while advanced packaging technologies (CoWoS and 3D packaging) prices may rise by at least 15%. Against this backdrop of rising prices, Goldman Sachs estimates that Taiwan Semiconductor's gross margin will rise to 59.3% this year, compared to 56.1% last year.

Goldman Sachs has raised the target price for Taiwan Semiconductor in its latest report, increasing the 12-month target price from 1320 New Taiwan Dollars to 1355 New Taiwan Dollars. As of Monday's stock market close, Taiwan Semiconductor's stock price surged by 4.56% to 1125 New Taiwan Dollars per share. Additionally, Goldman Sachs has increased the target price for Taiwan Semiconductor's US ADR from 248 USD to 254 USD, reaffirming a "Buy" rating and reiterating that the stock has been included in Goldman Sachs' "Conviction Buy" list. As noted, another Wall Street giant, Morgan Stanley, is bullish on Taiwan Semiconductor's stock price rising to 1388 New Taiwan Dollars, primarily based on Taiwan Semiconductor holding nearly all of the capacity for the highly demanded AI ASIC.