On Monday, Citi updated its outlook on Taiwan Semiconductor Manufacturing Co. Ltd. (2330:TT) (NYSE: TSM) shares, raising the price target to NT$1,150 from NT$1,030, while keeping a Buy rating on the stock. The adjustment follows a report suggesting that TSMC may increase wafer prices for its N5 and N3 technologies.
The price revision reflects the company's strong market position and the anticipated growth in demand for AI GPUs/accelerators and edge AI devices. Taiwan Semiconductor is expected to leverage its technological leadership and the rising costs of production elements, including materials, research and development, and utilities, to justify the higher pricing to its customers.
The endorsement from Nvidia (NASDAQ:NVDA)'s CEO, Jensen Huang, at Computex, where he expressed willingness to pay more for TSMC's offerings, underscores the confidence in TSMC's value proposition.
This sentiment aligns with the expectations of significant revenue growth for TSMC, with projections of 39% and 31% year-over-year increases for the years 2025 and 2026, respectively, following a robust 29% growth in 2024.
Citi's analysis suggests that TSMC's strategic pricing and cost management will enable the company to reflect its value to its customers amidst surging demand. The upgraded price target represents a 12% increase from the previous target, signaling confidence in TSMC's continued financial performance and market leadership.
In other recent news, Taiwan Semiconductor Manufacturing Company (TSMC) reported mixed results for its Q1 2024 earnings. Despite a sequential revenue decline of 5.3% in NT dollars and 3.8% in USD, TSMC experienced a gross margin increase to 53.1%. The company remains optimistic about its advanced N2 technology and high-performance computing (HPC) demand, which forms the largest revenue segment at 46%.
TSMC's Q2 revenue is forecasted between USD 19.6 billion and USD 20.4 billion, with a gross margin of 51% to 53%. However, a recent earthquake is expected to reduce Q2 gross margin by about 50 basis points. Despite this, TSMC is expanding its global manufacturing footprint with facilities in Arizona, Japan, and Germany.
The company's N2 technology, expected to lead in energy-efficient computing, is projected to start volume production in 2025. Additionally, AI processors are predicted to significantly drive revenue growth in the coming years. These recent developments underscore TSMC's commitment to growth and technological leadership in the semiconductor industry.
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