TSMC's financial report exceeds expectations and rises sharply,Comprehensive Analysis of TSMC's Current Investment Value

Comprehensive Analysis of TSMC's Current Investment Value (as of April 17, 2025)

I. Core Financial Performance and Technological Advantages

1. Strong Earnings Beat Driven by AI Demand
   TSMC reported Q1 2025 revenue of NT$839.25 billion (~$25.53 billion), up 41.6% YoY, with net profit surging 60.3% YoY to NT$361.56 billion, exceeding market expectations. This growth is fueled by soaring demand for AI chips, particularly GPUs and ASICs from clients like NVIDIA and AMD. Advanced 3nm/5nm process nodes accounted for 60% of revenue, while 7nm and below contributed 74%, highlighting TSMC's technological leadership.
2. Improving Profitability
   Gross margin rose to 59.0% in Q4 2024 (+6 percentage points YoY), and net profit margin reached 43.1% (+5 percentage points YoY), driven by optimized capacity utilization and production efficiency. Despite initial cost dilution from 3nm ramp-up, pricing power in advanced nodes supports high margins.
3. Capital Expenditure and Capacity Roadmap
   TSMC allocated $29.8 billion in 2024 capex, focusing on 2nm R&D and CoWoS advanced packaging capacity. Mass production of 2nm is expected in H2 2025, with A14 (1.4nm) planned for 2026. Global diversification (U.S., Japan, Germany) aims to mitigate geopolitical risks.

II. Industry Trends and Competitive Landscape

1. Semiconductor Growth Outlook
   • The global semiconductor market is projected to grow 11.2% to $697 billion in 2025, driven by AI chips (45% CAGR) and automotive electronics. TSMC forecasts AI-related revenue to grow at a 45% CAGR over the next five years.
   • Advanced packaging (e.g., CoWoS) remains supply-constrained through 2026, with TSMC holding ~60% market share.
2. Competitor Dynamics
   • Samsung: Plans 2nm production in 2025 but lags in yield and client trust. Intel: Accelerating 18A process development but faces a technology gap. SMIC: Focused on mature nodes with 6% market share (vs. TSMC’s 64.9%).
   • TSMC’s 2nm technology has already secured clients like AMD (EPYC "Venice"), while Intel delays 18A chip production to 2026, widening TSMC’s lead.

III. Risks and Challenges

1. Geopolitical and Supply Chain Risks
   • U.S. export controls on AI chips to China may impact some orders, but TSMC has secured special licenses for affected clients, limiting overall disruption.
   • Overseas fab costs (e.g., Arizona) exceed estimates, potentially reducing gross margins by 3-5 percentage points.
2. Technology Transition and Cost Pressures
   • High R&D and initial production costs for 2nm could push 2025 capex to $32-35 billion.
   • Rising electricity costs in Taiwan and advanced packaging equipment investments may pressure short-term margins.
3. Macroeconomic Volatility
   • A global slowdown could weaken demand for mature nodes, though AI/data center demand remains resilient.

IV. Institutional Ratings and Valuation Debates

• Bullish Views: Bernstein (target $251), Daiwa (Buy rating) emphasize AI demand and advanced packaging dominance.
• Cautious Views: JPMorgan Chase (target price lowered to NT $1300) and Bank of America (target price $240) are concerned about the impact of tariffs and geopolitical risks on consumer demand
• DCF Valuation: Some analysts maintain a long-term target of $260, implying a 2025 P/E of ~25x, below the 5-year average of 28x.

V. Investment Recommendations

Short Term (6-12 months):

• Catalysts: Strong Q1 earnings, visibility into AI orders, 2nm production timeline.
• Risks: Geopolitical tensions, profit-taking after recent rally.
• Strategy: Hold existing positions; consider adding on dips (e.g., near 200-day moving average).

Long Term (3-5 years):

• Thesis: AI-driven compute demand, monopoly in advanced nodes, global capacity diversification.
• Target Range: $240-$260 (2025 EPS of $10-$11, P/E 22-24x).
• Key Risks: CoWoS capacity expansion, U.S. trade policy post-2024 election.

Conclusion: TSMC remains a compelling investment given its technological moat and industry dominance. However, short-term volatility and geopolitical risks warrant caution. Investors should focus on long-term growth drivers while positioning for potential pullbacks.