Not just the highlights of July! Morgan Stanley: Apple's tariff relief, TSMC's Q4 and next year's performance will reach new highs

According to the Zhitong Finance APP, JP Morgan has released a research report expressing an optimistic outlook on the performance prospects of Taiwan Semiconductor (TSM.US), expecting it to maintain strong growth driven by multiple factors. The firm maintains an "overweight" rating on Taiwan Semiconductor's stock, with a target price of NT$1,275.

Third Quarter Revenue Expected to Reach Guidance Upper Limit

The bank pointed out that Taiwan Semiconductor's revenue performance in July was impressive, with a year-on-year increase of 26% and a quarter-on-quarter increase of 23%, accounting for 34% of the firm's estimated revenue for the third quarter. Analysts expect Taiwan Semiconductor's third-quarter revenue to approach the upper limit of the guidance range (USD 31.8 billion to USD 33 billion, or NT$922 billion to NT$957 billion), mainly benefiting from the continued strong performance of the smartphone platform (especially the N3 process serving Apple (AAPL.US)) and the stable growth momentum in high-performance computing (HPC).

In terms of specific process nodes, the utilization rates of the N3 and N5 process node series have reached over 100%, while the N7 series may perform better in the second half of 2025 due to increased production of Apple WiFi and transceivers used for the C1 modem. Additionally, although the non-AI sector may slow down after a strong performance in the first half of 2025, the AI sector continues to grow, and the overall strong performance of servers recently may bring additional growth to HPC in the next 1-2 quarters.

Apple-Related Benefits May Boost Fourth Quarter Performance

Recently, the electronic manufacturing services (EMS) production of iPhone 17 across the entire supply chain has increased, with unit expectations raised by about 5-10%. Coupled with Apple's recent tariff reductions, JP Morgan believes that this positive factor will be reflected in Taiwan Semiconductor's revenue by the end of the fourth quarter of 2025, potentially bringing Taiwan Semiconductor's revenue growth rate in fiscal year 2025, measured in USD, close to 35%.

Looking ahead to 2026, Apple may launch a foldable iPhone and could upgrade all of its iPhone chips to the N2 process. In addition to strong AI demand growth, Apple is expected to be a driving factor for Taiwan Semiconductor's healthy growth in 2026.

Impact of Section 232 Eases, Pricing Power Expected to Strengthen

JP Morgan noted that the impact of the U.S. Section 232 investigation and semiconductor tariffs seems to be milder, with most supply chains (such as Apple, Nvidia (NVDA.US), etc.) exempt from 100% of semiconductor tariffs. This is a continued benefit for Taiwan Semiconductor's customers.

Furthermore, Taiwan Semiconductor's capacity expansion in the U.S. is now crucial for all its customers to obtain exemptions from Section 232-related semiconductor tariffs. JP Morgan believes this will significantly enhance Taiwan Semiconductor's pricing power in the coming years.

View on Samsung and Tesla Collaboration

Recently, Samsung (SSNLF.US) and Tesla (TSLA.US) announced a long-term supply agreement worth over USD 16 billion to be reached by 2033, with Tesla stating that Samsung will manufacture its Al6 chips for autonomous driving and other chips for humanoid robots in the future.

On the surface, this appears to be a loss of market share for Taiwan Semiconductor, as the AI5 (based on the N3 process) and Dojo 1 and 2 AI-specific integrated circuits are produced by Taiwan Semiconductor However, JP Morgan believes that Taiwan Semiconductor will not be able to allocate sufficient capacity for Tesla at its Arizona factory. Moreover, Tesla is not among Taiwan Semiconductor's top 10 customers, as historically, most of its wafer demands (such as HW3 and HW4) have been met in collaboration with Samsung. JP Morgan also believes that Taiwan Semiconductor should be able to capture 90-95% of the market share for its first N2 products, with early signals indicating that the market share for A14 is similar.

2026 Growth Expectations

Looking ahead to 2026, JP Morgan expects Taiwan Semiconductor to continue to maintain strong growth (the firm anticipates a 19% increase in dollar terms), primarily driven by price increases in advanced process nodes, strong enhancements in N2 capacity, AI-specific integrated circuit/GPU customers upgrading to N3P processes, and sustained strong demand for AI. The continued growth in demand for Apple's iPhone may also pose an upside risk to performance in 2026