Komo: Tariffs pressure demand to lower TSM.US target price and profit forecast

The Zhitong Finance App learned that J.P. Morgan Chase released a research report to lower the target price of TSM.US from NT$1,500 to NT$1,300, giving it an “increase in holdings” rating. Komo predicts that TSMC's revenue for the second quarter of this year could increase 5% to 8% quarterly, driven by strong demand for N4/N5 and N3 processes, express orders for some old processes, and continued growth in the advanced packaging business. However, under the influence of tariffs and the global economic slowdown, TSMC management may lower the revenue growth guide for fiscal year 2025 from about 25% to the middle and low range of 20%. Currently, Xiaomo predicts that its annual revenue will increase by 23% (in US dollars).

Over the past two months, several factors have been dragging down TSMC's stock price, including the establishment of a joint venture with Intel (INTC.US), the impact of increased US investment on profit margins, the slowdown in demand for artificial intelligence in data centers, and the impact of tariffs on terminal demand.

Komo believes that TSMC may reaffirm its long-term data center artificial intelligence growth guidelines (with a compound annual growth rate of around 45% by 2029), while also downplaying the impact of increased US investment on incremental profit margins. Given various circumstances, TSMC is likely to remain silent on the potential of a joint venture with Intel (which may still be an unresolved issue for the stock), while also considering the slowdown in growth caused by tariffs and the global economic slowdown.

Taking into account weak demand growth, Komo lowered TSMC's earnings per share forecast for the 2025-2027 fiscal year by 4%, 12%, and 4%. Komo also pointed out that judging from the past downward cycle, TSMC's stock price already reflects most of the negative factors. If there is no longer a situation that greatly affects the decline in earnings per share, it is expected that the stock price may rebound 20% to 25% in the short term.

In terms of financial reports, Komo expects that TSMC's performance for the first quarter of '25 is basically in line with expectations, and that the guidance for the second quarter of '25 remains healthy. Komo expects results for the first quarter of '25 to be within the guideline, taking into account better-than-expected revenue and the impact of some additional costs associated with the disruption of the earthquake. Looking ahead to the second quarter of '25, Xiaomo expects TSMC's month-on-month growth rate to be 5-8% (Xiaomao expects 7%). This is due to the continued growth momentum of the N5 and N3 process series, as well as urgent orders from some old nodes due to the 90-day suspension of tariffs (excluding the Chinese business). Demand trends for old process nodes have improved (orders from mobile SoC vendors have increased, such as MediaTek and Asus N7 and N12, and some products from AMD), while some demand from Intel has declined. Overall, Komo expects TSMC's results for the second quarter of '25 to remain healthy, with profit margins in the 50% range (probably in the 58-60% range; Xiaomo expected 58.9%), although AZFab's growth is being diluted more and more.

Despite tariff cuts on some projects, Komo believes caution is still needed. Tariff exemptions for smartphones, personal computers, and other electronic products announced by the White House over the weekend eliminated the initial impact on these products (high tariffs from China), but the impact of the slowdown in consumer demand in China and the US may still be a risk in the second half of 2025 and 2026. As a result, Komo is more cautious about demand (especially in the non-AI sector, which should be affected more quickly). Komo lowered TSMC's revenue growth forecast for the 25/26 fiscal year by 4%/7%, and now the year-on-year growth rate is only 23%/13%.

Investment views

Thanks to its strong process roadmap (N3 and N2) and industry-leading packaging technology, J.P. Morgan expects TSMC's structural growth leverage to remain strong, as it has a near-monopoly position in AI accelerators and cutting-edge AI. However, due to tariffs and the global economic slowdown, Komo believes TSMC may lower its fiscal year 2025 revenue guidance to take a more cautious view of terminal demand. Komo also expects weak demand growth to affect earnings per share, particularly in the non-artificial intelligence category, which is expected to have the most significant impact in 2026.