TSMC (TSM.US) Earnings Preview: Morgan Stanley Flags Three Critical Variables

Stock News
16 Jul

Taiwan Semiconductor Manufacturing Company (TSM.US) prepares to unveil quarterly results this Thursday, with its stock trajectory governed by dual dynamics: fragmented demand patterns and technological premium advantages. Morgan Stanley reiterates its "Buy" rating while setting a NT$1,288 price target, signaling 17.6% potential upside.

Revenue projections reveal Q3 as a pivotal inflection point. Analysts outline three 2025 growth scenarios: Should quarterly revenue climb 5% sequentially (exceeding 30% year-over-year), annual growth could breach 30%. A modest 0-3% quarterly rise (approximately 20% YoY) would cap yearly expansion at 20%, while a 1-3% contraction might still sustain near 20% annual growth. This volatility underscores semiconductor demand bifurcation—AI server chips surge relentlessly while smartphone and PC segments languish. Crucially, TSMC's cutting-edge process utilization shows no signs of erosion through late 2025, bolstered substantially by NVIDIA's (NVDA.US) expanding GB200 chip production.

Gross margin resilience anchors at the 53% threshold, projected to hold within 53%-58% even under pessimistic conditions. Two pillars support this: First, TSMC's "tech premium + capacity lock-in" strategy for major clients, where 3nm wafer pricing commands 20%-25% premiums over 5nm equivalents. Second, CoWoS advanced packaging operates above 95% utilization, progressively lowering unit costs. Intriguingly, Morgan Stanley hints at potential 2026 wafer price hikes, suggesting TSMC could further fortify profit barriers if AI demand persists.

AI emerges as the dominant growth catalyst, with upside risks concentrated in three areas: Explosive AI chip demand (H100/H200 orders backlogged to 2026), accelerated Intel (INTC.US) CPU outsourcing contributing 5%-8% revenue through 2027, and cryptocurrency revival lifting ASIC chip orders. Conversely, threats loom from prolonged consumer electronics inventory corrections, underwhelming sub-3nm client adoption, and cost overruns at US/European fabs. TSMC's technological moat remains formidable—its yield rates for advanced nodes reportedly exceed Samsung's by 20 percentage points.

For investors, Morgan Stanley highlights three critical variables from TSMC's July 17 earnings call: Potential upward revision of 2025 revenue guidance toward 30%, clarity on 2026 pricing strategies, and quantitative assessments of AI demand sustainability alongside non-AI market recovery. Positive developments across these metrics could propel valuations beyond 25x forward P/E, while setbacks might trigger downside toward 15x. Though US import tariffs pose cost concerns for American clients, TSMC's irreplaceable technological edge is expected to mitigate such pressures.

This analysis crystallizes TSMC's dual identity: Both semiconductor cycle barometer and foundational AI revolution beneficiary. As traditional electronics weakness collides with bleeding-edge tech demand, TSMC's earnings elasticity becomes the ultimate test for "technology premium transcending cycles." Deciphering the upcoming earnings call may well determine semiconductor investment outcomes for the latter half of 2025.

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