After TSM.US “Quarterly Report Blowout”: Wall Street praised it and raised the target price one after another!

The Zhitong Finance App learned that after TSM.US's third-quarter results and guidelines exceeded expectations, the stock price soared 13% on Thursday, causing enthusiastic reactions on Wall Street. TSMC's excellent performance has driven chip stocks higher. Nvidia (NVDA.US) rose 3%, Qualcomm (QCOM.US) rose 2%, Broadcom (AVGO.US) rose 4%, AMD (AMD.US) and Intel (INTC.US) each rose 1%, and Micron Technology (MU.US) rose 3%. Wall Street has released reports that are optimistic about TSMC's future prospects.

Needham maintained a buy rating on the stock and gave a target price of $210. Analysts led by Charles Shi (Charles Shi) said, “TSMC handed over a blowout quarterly report, and revenue, gross profit margin, and guidance far exceeded general expectations.”

TSMC currently expects capital expenditure to be slightly above $30 billion in 2024, and even higher in 2025. However, according to analysts, this appears to be a $1 billion cut to this year's capital expenditure budget.

Analysts said that due to the relatively low quarterly capital expenditure in the first three quarters of this year (about 6 billion US dollars per quarter), the capital expenditure guidelines mean that capital expenditure will almost double to around 12 billion US dollars in the fourth quarter of 2024. This is probably driven by the initial N2 expansion.

TSMC's 3nm process technology contributes 20% of total wafer revenue, while 5nm process technology accounts for 32% of total wafer revenue.

Analysts said that compared to Needham's estimates, TSMC's third-quarter results showed that N3's performance was much stronger, while N5's performance was slightly weaker. The growth of N3 should be mainly driven by Apple (AAPL.US), while N5's revenue seems to have stabilized after six consecutive quarters of strong growth.

Wei Zhejia, chairman and CEO of TSMC, said during the company's earnings conference call that the revenue contribution of server artificial intelligence processors will more than double this year, and will account for about 15% of total revenue by 2024.

According to comments from TSMC management, analysts estimate that the company's artificial intelligence revenue last year was around $4 billion, which could reach $13 billion this year. According to analysts, TSMC has given guidelines that artificial intelligence will account for 20% of total revenue by 2028. If it maintains a compound annual growth rate of 15% or more over the next four years, this will bring in more than 33 billion US dollars in revenue.

According to Shi and his team of analysts, the revenue distribution among technology nodes reported by TSMC shows that amorphous revenue (mainly from packaging) increased significantly from US$2.4 billion in the second quarter of 2024 to US$3.2 billion in the third quarter of 2024, an increase of 36%.

This may be partly due to Apple driving the increase in InFO revenue, but the continuous increase appears to be higher than seasonal growth (about 20% quarter-on-quarter), and indeed supports the rumor that TSMC or CoWoS (Chip On Wafer On Substrate) production capacity was increased by 60% to 80%, which was announced in the third quarter of 2024.

In addition to Needham, Bank of America also maintained its buy rating for TSMC. Analysts raised the stock's target price to NT$1,400, with room for an increase of 35%, to reflect the company's strong third-quarter results and fourth-quarter guidance, better artificial intelligence capabilities, and solid industry leadership.

The analyst added that continued growth in capital spending in 2024 and the optimistic tone of capital spending in 2025 further supported this outlook. Optimistic fourth-quarter guidance also boosted their confidence in future growth.

Analysts said that thanks to advances in artificial intelligence technology, TSMC's valuation remains attractive, including the acceleration of Nvidia Blackwell, increased N3 production, rising demand for advanced nodes, rising average sales prices, and increased market share, all of which will drive the company's structural profit growth.

The bank added that despite concerns about recent demand, they have reaffirmed the buy rating.

The company's demand outlook is very positive, and strong demand for artificial intelligence marks the beginning of a long-term trend. Furthermore, non-artificial intelligence businesses are gradually stabilizing and recovering. The analyst added that the PC and smartphone business (which accounts for about 45% to 50% of revenue) is benefiting from rapid growth in silicon area.

After 2026, due to high demand for N2 and A16 technology and TSMC's leading position in technology, TSMC's growth prospects are still strong, and analysts expect competition to continue to ease. The bank added that TSMC expects the US integrated device manufacturer (IDM) to still have a large number of orders and has no interest in acquiring its fab.

Bank of America believes that the risk of antitrust issues is limited because the company only accounts for about 30% of the industry share under the OEM 2.0 Total Addressable Market (TAM), and its market behavior does not meet the standards of antitrust concerns.

In addition, analysts also said that the slowdown in ASML.US (ASML.US) shipments may indicate an improvement in long-term OEM supply or demand, thereby further strengthening TSMC's market position.