By Adam Clark

Taiwan Semiconductor Manufacturing is enjoying its sweet spot as the dominant manufacturer of artificial-intelligence chips. The stock has further to run and investors needn't worry about meaningful competition from Intel, according to analysts at J.P.Morgan.

TSMC's American depositary receipts have more than tripled in value since late 2023. The Taiwanese company has gained hugely from being the main supplier to AI chip leader Nvidia as well as all its major competitors, including Advanced Micro Devices and Broadcom.

Intel is aiming to challenge that position, leveraging its position as a domestic American champion, and its hopes were boosted by the U.S. government's $8.9 billion investment in the chip company in August last year.

But J.P.Morgan's Gokul Hariharan doesn't see a threat that major American customers such as Nvidia will switch suppliers, backing TSMC to keep more than a 95% market share in manufacturing 2-nanometer scale chips, representing the coming generation of advanced processors.

"We believe that customers are likely to place small volume projects at Intel Foundry given the US government investment, but almost all mission critical projects in the N2 [2-nanometer] family are likely to be at TSMC in the next few years," Hariharan wrote in a research note Wednesday.

Nvidia made a $5 billion investment in Intel but so far there has been no indication that the AI chip leader will commit to using Intel's foundry. Nvidia tested manufacturing its chips using Intel's production process but stopped moving forward with plans, Reuters reported recently, citing people it didn't identify. Nvidia didn't respond to a request for comment at the time of the report.

Meanwhile, Intel has just launched its Core UltraSeries 3 processors, which it called the "most advanced, ever developed and manufactured in the U.S." The range was built on its 18A manufacturing process but Hariharan argues chip companies are unlikely to adopt mass production with Intel until the next-generation 14A process at the earliest.

"We believe Intel Foundry may need to prove its execution on at least two to three leading-edge process nodes for it to gain credibility with fabless customers," Hariharan wrote.

The question which looms over TSMC is the threat from China's ambitions to claim Taiwan as its territory. But TSMC is diversifying by building sites in the U.S., and has said it intends to manufacture chips using its 2-nanometer process in Arizona as early as 2028.

"We...expect a more accelerated schedule for TSMC's first advanced packaging Fab buildout in the US (likely in 2027-28)," Hariharan wrote.

So much for the competition. What about the financials? TSMC recently raised its guidance for 2025 revenue growth to the middle range of 30%-40%, from about 30% in U.S. dollar terms. The main driver of that growth is AI-related chip revenue, which TSMC has previously said it expects to double in 2025 and grow at a mid-40% annual rate for the next five years.

Things might cool down slightly this year and the next, with Hariharan forecasting TSMC will report 30% revenue growth in U.S. dollar terms for 2026 and 25% growth in 2027. The analyst expects gross margins in the low 60% range compared with guidance for 59%-61% for the fourth quarter of 2025.

Hariharan raised his target price on TSMC stock to 2,100 New Taiwan dollars ($66.79) from 1,700 New Taiwan dollars previously. TSMC's U.S. listed ADRs -- each of which represents five Taiwan shares -- were down 1.3% at $323.37 in premarket trading Wednesday.

Write to Adam Clark at adam.clark@barrons.com

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January 07, 2026 09:04 ET (14:04 GMT)

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