UBS raises TSMC's target price to NT$1,200, with AI demand and capacity expansion as dual growth engines

According to the Zhitong Finance APP, UBS has released a forecast report on TSMC's (TSM.US) Q2 2025 financial performance, reiterating a "Buy" rating and raising the target price from NT$1,180 to NT$1,200. UBS reveals the underlying logic of this company's future growth from multiple dimensions, including capacity layout, financial forecasts, and industry trends.

Capacity Map Continues to Expand, Technical Barriers Build a Moat

By the end of 2023, TSMC's annual production capacity has reached 36 million 8-inch equivalent wafers, with its production network covering both Taiwan and overseas. In Taiwan, the company operates four 12-inch wafer fabs, four 8-inch wafer fabs, and one 6-inch wafer fab; overseas, it manages one 12-inch wafer fab and two 8-inch wafer fabs in the United States and China through wholly-owned subsidiaries. This strategy of "deep cultivation at home + global radiation" not only ensures supply chain stability but also provides a buffer against geopolitical risks.

Financial Data Fully Upgraded, Profit Resilience Exceeds Expectations

UBS has significantly raised TSMC's dollar revenue growth forecast for 2025 from 25% to 29%, with capital expenditure (CAPEX) expectations also raised to a range of $40 billion to $42 billion. Behind this adjustment is the dual drive of explosive demand for cloud AI and the release of advanced process capacity. Specifically, for the quarterly level, the dollar revenue growth in Q2 2025 is expected to exceed TSMC's own guidance of 13%, with gross margin expected to remain at a high level of 57.0%, close to the historical peak of 58.8% in Q1. More notably, UBS has raised TSMC's long-term earnings per share (EPS) compound annual growth rate estimate from 16% to 18%, highlighting the continued contribution of the N2 process (2-nanometer level) and cloud AI business to profitability.

AI Demand Creates New Increment, CoWoS Packaging Becomes a Key Puzzle Piece

Amid the fluctuations of the semiconductor cycle, TSMC has demonstrated unique risk resistance capabilities. Although UBS has lowered its smartphone/PC shipment forecasts for 2025-2026, it holds an optimistic view on cloud AI chip demand. As the core technology for AI chip packaging, the expansion of CoWoS capacity has become a focal point. The research report predicts that TSMC's CoWoS capacity will reach 70,000 wafers per month (kwpm) by the end of 2025 and further climb to 100 kwpm by the end of 2026, a 30% increase from previous plans. If this expansion pace can be realized, it will directly alleviate clients like NVIDIA's anxiety over high-end AI chip supply and drive the revenue share of the packaging business to break into double digits.

Pricing Power and Cost Control, Dual Approach to Protect Gross Margin

In the face of profit margin pressure brought by the appreciation of the New Taiwan Dollar, TSMC has demonstrated precise response strategies. UBS predicts that from Q3 2025 to 2026, the company's gross margin will maintain in the range of 55.5% to 56.5%, significantly higher than the market consensus expectation of 53% to 55%. This is attributed to two main strategies: first, a structural price increase will be implemented for N5 (5-nanometer level) and N3 (3-nanometer level) wafers at the beginning of 2026, with a price increase of 3%-5% for mobile products and up to 10% for the HPC (high-performance computing) sector; second, effective hedging against exchange rate fluctuations through capacity utilization optimization and supply chain management

Risks and Opportunities Coexist, Capital Expenditure Strategy Becomes a Key Factor

Despite the optimistic outlook, UBS also warns of potential risks: accelerated technological iteration may weaken the competitiveness of existing processes, and geopolitical risks, such as the U.S. Trade Expansion Act of 1962 Section 232 investigation, may increase operating costs. In response, TSMC's management has planned to increase capital expenditures for the N2 process and overseas expansion, with external capital expenditures expected to reach $40 billion in 2025, a 5% increase from previous plans. This move not only reinforces its technological leadership but also positions itself for the restructuring of the global semiconductor supply chain.

Valuation and Investment Recommendation: Target Price Raised to NT$1,200

Based on stronger expectations for AI demand and cost pass-through capabilities, UBS maintains a "Buy" rating on TSMC and raises the 12-month target price from NT$1,180 to NT$1,200. The current stock price of NT$1,055 corresponds to a price-to-earnings ratio of only 22 times for 2025, significantly lower than its long-term earnings growth expectations. For investors seeking core assets in the semiconductor supply chain, TSMC remains one of the most certain choices, driven by its monopoly position in advanced processes, the release of AI wave dividends, and a robust capital return strategy, with the dividend yield expected to rise to 1.8% in 2025