The impact of tariffs and global economic slowdown, JP Morgan lowers TSMC CoWoS demand

Affected by Trump's tariffs and expectations of a global economic slowdown, JP Morgan has slightly lowered its demand forecast for TSMC's CoWoS.

On Wednesday local time, JP Morgan's analyst team led by Gokul Hariharan released a research report, reducing its consumption expectations for TSMC's CoWoS advanced packaging technology by 7% and 3% for the next two years, citing decreased demand from Amazon's self-developed AI chips and macroeconomic uncertainties. The report predicts that, considering the impact of tariffs and the global economic slowdown, TSMC's management may lower its revenue growth guidance for the fiscal year 2025 from about 25% to around 20%.

Given the significant fluctuations in the supply chain of Amazon's Trainium 2 chips, JP Morgan has drastically reduced its shipment forecast for Trainium 2 in 2025 to about 1.1 to 1.2 million units.

Additionally, the prospects for external customers adopting Amazon's Trainium chips are limited. JP Morgan now expects that over the next two years, the lifecycle units of the next-generation Trainium project will only grow by 5-10%, and the market may adopt a more cautious attitude towards Amazon's custom chip (ASIC) projects.

Nevertheless, JP Morgan predicts that the overall demand for TSMC's CoWoS is still expected to grow by 107% in 2025, with continued growth of 37% in 2026, mainly driven by strong demand from NVIDIA, an increase in ASIC projects (especially from Broadcom and MediaTek), and the launch of Apple's WMCM chip packaging business.

NVIDIA Remains the Largest Customer of CoWoS, but Growth Expectations Become More Rational

The report anticipates that TSMC's CoWoS capacity will remain tight in 2025, but may reach a supply-demand balance by 2026.

NVIDIA continues to be the main driver of CoWoS-L demand, and Morgan Stanley expects the company to secure enough CoWoS allocation to produce about 5.5 to 6 million Blackwell B200/B300 chips and about 700,000 Hopper chips in 2025.

JP Morgan has raised its estimate for NVIDIA's CoWoS consumption in 2026 by about 10%, mainly due to the low wafer yield of the Rubin chip (each CoWoS wafer can only support the production of 11-12 chips), with packaging area increasing by 30-35%.

It is noteworthy that this forecast does not assume a significant increase in GPU units (which may remain at around 7 million units). NVIDIA is expected to account for 65% and 60% of total CoWoS capacity in 2025 and 2026, respectively.

JP Morgan maintains an "Overweight" rating on TSMC, but lowers the target price from NT$1,500 to NT$1,300, which is about 52% higher than the current stock price.

According to predictions, due to the strong demand for N4/N5 and N3 processes, some urgent orders for older processes, and the growth of advanced packaging business, Taiwan Semiconductor's revenue in the second quarter of this year may increase by 5% to 8% quarter-on-quarter. However, the impact of tariffs and the global economic slowdown may lead TSMC's management to lower the revenue growth guidance for the fiscal year 2025 from about 25% to around 20%. Currently, JP Morgan expects TSMC's annual revenue to grow by 23% (in USD).

TSMC's performance seems to be less than optimistic, with more and more analysts predicting weak performance. Deutsche Bank stated that as customers adapt to tariff changes, TSMC may also withdraw its performance guidance