TSMC Price Target Raised To $270 – AI Wafer Demand Model Suggests Upside

Taiwan Semiconductor Manufacturing Co. (NYSE: TSM), the world's leading semiconductor foundry, is garnering increased attention from Wall Street, particularly for its strategic positioning in the burgeoning artificial intelligence (AI) market.

Needham analyst Charles Shi has significantly boosted the firm's price target on TSMC to $270 from $225, reiterating a “Buy” rating, a move that underscores growing confidence in the company's ability to capitalize on the AI revolution. This bullish outlook is rooted in Shi's analysis of TSMC's AI wafer demand model, which suggests the company can achieve its ambitious target of $90 billion in AI-related revenue by 2029 without relying heavily on unit volume growth.

TSMC's stock price has rallied strongly off April's low, and have strongly outperformed over the past 12 months, with gains of 31.5%.

The core of Shi's argument lies in the increasing silicon content within each AI-driven package and the strategic shift towards custom High Bandwidth Memory (HBM) base dies. These factors are expected to drive substantial revenue growth in the coming years. As AI models become more complex and demand greater processing power, the need for larger, more sophisticated chips increases.

This translates directly into higher revenue per wafer for TSMC, even if the overall number of wafers produced remains relatively stable. The transition to custom HBM base dies further amplifies this effect, as these specialized memory solutions command premium pricing and contribute significantly to the overall value of each AI-centric chip package.

Over the past year, TSMC has demonstrated impressive growth, with its most recent quarterly revenue reaching $25.53 billion, a remarkable 35.33% year-over-year increase. This growth is a testament to the strong demand for TSMC's advanced semiconductor manufacturing capabilities, particularly in the AI sector.

Looking ahead, analysts predict continued revenue and earnings growth, fueled by the ever-increasing demand for AI-related technologies and TSMC's leading-edge process technologies. The average 1-year price target for TSMC is $223.71, with some analysts projecting as high as $270, aligning with Needham's bullish stance.

TSMC's strategic initiatives, including its “Foundry 2.0” vision, further bolster analyst confidence. The company's focus on capital efficiency and potential for increased free cash flow leading to higher dividend payouts are attractive to investors. Moreover, TSMC's emphasis on advanced packaging as a key element in expanding its serviceable market underscores its commitment to capturing more value within the semiconductor supply chain. By offering comprehensive solutions that encompass both chip manufacturing and advanced packaging, TSMC is solidifying its position as a critical partner for AI developers and other high-performance computing applications.

Despite the overwhelmingly positive outlook, it's important to acknowledge potential risks. Global economic uncertainties, geopolitical tensions, and increasing competition in the semiconductor industry could impact TSMC's performance. The company also faces the challenge of managing its capital expenditures effectively while continuing to invest in research and development to maintain its technological lead. Furthermore, any slowdown in the growth of the AI market could dampen demand for TSMC's products and services.