$Taiwan Semiconductor (TSM.US)$ As the world's largest semiconductor foundry, taiwan semiconductor provides chip manufacturing and advanced packaging technology services to companies such as apple. $Apple (AAPL.US)$N/A.$NVIDIA (NVDA.US)$Since the beginning of this year, taiwan semiconductor has seen a substantial increase of 85%. Since hitting a temporary low on August 5th, taiwan semiconductor has rebounded by over 40% from the low point, with the market cap expected to surpass the trillion-dollar mark.

Taiwan Semiconductor will announce its latest Q3 performance this Thursday (October 17th) Beijing time. According to market consensus, TSMC's third-quarter revenue is expected to reach 750.211 billion New Taiwan dollars, an increase of 37.22% year-on-year; earnings per share are 56.8 New Taiwan dollars, up 36.4% year-on-year.

TSMC's September revenue data released last week showed sales reaching 251.87 billion New Taiwan dollars, exceeding expectations with a 39.6% year-on-year increase and a 0.4% increase from the previous month. Year-to-date, TSMC's total revenue amounts to 2025.85 billion New Taiwan dollars, a 31.9% increase compared to the same period last year.

The demand for AI chips remains strong, and Taiwan Semiconductor's Q3 revenue is expected to exceed expectations.

While there is a difference of opinion regarding whether the recent growth momentum driven by artificial intelligence can last, Taiwan Semiconductor's September revenue data undoubtedly alleviated market concerns about reduced hardware spending on artificial intelligence. Benefiting from strong AI demand, Taiwan Semiconductor's September revenue is around 251.873 billion New Taiwan dollars, surpassing market expectations and significantly increasing by 39.6% compared to the same period last year.

According to calculations, Taiwan Semiconductor's revenue from July to September this year was 759.69 billion New Taiwan dollars (approximately 23.62 billion US dollars), higher than the average analyst estimate of 750.36 billion New Taiwan dollars (approximately 23.33 billion US dollars), and also exceeded Taiwan Semiconductor's own performance outlook range of 22.4-23.2 billion US dollars.

In recent years, with the rise of artificial intelligence technology, especially after the emergence of large language models like ChatGPT, the global demand for AI chips has sharply increased. As one of the key participants in the surge of global artificial intelligence development expenditure, Taiwan Semiconductor focuses on producing cutting-edge chips required for training artificial intelligence.

Since 2020, Taiwan Semiconductor's sales have nearly doubled, undoubtedly demonstrating the company's leadership position in addressing challenges in the AI era. Meanwhile, as Intel and Samsung Electronics gradually lag behind in the competition for custom chip manufacturing, Taiwan Semiconductor's anticipated market leadership is expected to boost its profit margin.

NVIDIA's main server assembly partner, Hon Hai's chairman, Liu Yangwei, reiterated last week that the demand for artificial intelligence hardware remains strong. Liu Yangwei stated that the company plans to increase server capacity to meet the "crazy" demand for the next-generation Blackwell chip, echoing similar statements made earlier this month by NVIDIA CEO Huang Renxun.

Media reports suggest that with the strong demand for smartphone chips, combined with the possibility of increased orders for AI accelerators from NVIDIA and AMD, the demand for Taiwan Semiconductor's 3nm process node capacity is expected to surge in 2025. Rumors have it that Apple's A19 Pro next year will adopt the N3P process.$Qualcomm (QCOM.US)$The flagship chips of MediaTek may follow suit. In addition, $Advanced Micro Devices (AMD.US)$ The next generation accelerator series Instinct MI350 based on the CDNA 4 architecture will also adopt the 3nm process.

JPMorgan emphasized that even if Intel does not further outsource server processor production, TSMC's 2nm and 3nm processes still have strong market demand. For example, with strong demand for AI chips, it is expected that TSMC's 3nm capacity will increase from 0.09 million wafers in 2024 to 0.12 million wafers in 2025. As for the 2nm process, despite the iPhone 17 continuing to use the 3nm N3P process in 2025, TSMC is expected to expand its capacity from 0.01 million wafers per month in 2024 to 0.05 million wafers per month in 2025.

JPMorgan stated that driven by strong demand for AI chips, TSMC's gross margin in the fourth quarter is expected to slightly increase from 55% in the third quarter to 55.5%. After successfully raising wafer prices, TSMC is expected to maintain a gross margin of around 55% in 2025 and beyond, with the increase taking effect next year. Therefore, with the long-term growth prospects of increasing gross margins, it is estimated that TSMC's expected EPS in 2025 will be more attractive among semiconductor companies in Asia.

Bullish news continues! A major breakthrough in the 2nm process, TSMC accelerates its CoWoS expansion plan.

Recently, several media reports have stated that TSMC has made a significant breakthrough in the 2nm process node, introducing Gate-all-around FETs (GAAFET) transistor technology for the first time. Compared to the current N3E process, the N2 process is expected to improve performance by 10% to 15% at the same power, and power consumption may decrease by 25% to 30 with constant frequency. Of particular note, transistor density will increase by 15%, marking another major leap in semiconductor technology by TSMC.

With the advancement of technology, costs will also rise accordingly, and the 2nm process will see a price increase. It is predicted that the price of a 300mm 2nm wafer from TSMC may surpass the $0.03 million mark, higher than the earlier estimate of $0.025 million. In comparison, the current price range for 3nm wafers is approximately $0.0185 million to $0.02 million, while 4/5nm wafers hover between $0.015 million and $0.016 million.

In addition, Taiwan Semiconductor has recently accelerated the CoWoS expansion plan. According to the supply chain news, in order to address urgent customer demand, Taiwan Semiconductor quickly launched the 'rapid factory construction' plan after acquiring Chi Mei Nan Ke Fab 4 in mid-August. Currently, the factory is synchronizing the delivery process, and has issued 'super urgent orders' to factory and equipment suppliers to ensure that it can incorporate advanced CoWoS packaging capacity in the first half of 2025, with the goal of doubling the total CoWoS capacity by 2025.

Citigroup's report pointed out that advanced process and packaging technology are key to the success of artificial intelligence (AI) chips. By the end of this year, Taiwan Semiconductor's CoWoS capacity is 0.03-0.04 million pieces per month. After acquiring Chi Mei Nan Ke Fab 4, the CoWoS capacity by the end of 2025 will increase from 0.06-0.07 million pieces to 0.09-0.1 million pieces per month, with an annual production capacity estimated to reach 0.7 million pieces or more, double the estimated capacity of 0.35 million pieces for this year.

Taiwan Semiconductor is actively expanding its CoWoS capacity. Although some institutional investors are concerned about potential oversupply in the future, Citigroup believes that the lower risk of demand for advanced packaging. Citigroup expects that by the end of 2025, Taiwan Semiconductor will upgrade to the 2nm process, with increasing demand for 3D IC/SOIC, which will be sufficient to support the expansion of advanced packaging.

Morgan Stanley believes that Taiwan Semiconductor's CoWoS capacity has room for growth and has also raised its expectations for Taiwan Semiconductor's CoWoS capacity by the end of 2025, from 0.068 million pieces per month to 0.08 million pieces per month. As the CoWoS expansion accelerates, Morgan Stanley has raised its 2025 capital expenditure estimate to $38 billion.

Morgan Stanley stated that based on their findings on Taiwan Semiconductor's 2nm and 3nm advanced processes, as well as the rapid increase in CoWoS advanced packaging capacity to meet the demand of the AI market, they are bullish on the future business prospects of Taiwan Semiconductor. Therefore, in their report, Morgan Stanley mentioned that while still in a rapid growth phase, Taiwan Semiconductor is expected to maintain a revenue compound annual growth rate of 15% to 20% over the next five years.

How has the stock price performed on past earnings days?

According to Market Chameleon, backtesting the performance over the past 12 quarters, Taiwan Semiconductor has a high probability of rising on the day of the performance release, approximately 75%, with the average stock price change of ±4.2%, a maximum increase of +9.8%, and a maximum decrease of -5%.

From the skewness of option volatility, the market sentiment slightly puts a bearish view on Taiwan Semiconductor's future trends.

Editor / jayden