Wall Street Analysts Remain Bullish on TSMC Stocks After Nvidia Earnings Report

Investing.com — Analysts on Wall Street reiterated their bullish views on Taiwan Semiconductor (TSMC) shares following the latest Nvidia (NASDAQ:NVDA) earnings report.

After the market closed on Wednesday, Nvidia shares experienced a notable decline as its quarterly forecast fell short of heightened investor expectations, dropping over 6% in after-hours trading. However, these losses were halved in Thursday’s premarket trading.

Despite this drop, analysts expressed a largely optimistic view based on positive comments from Nvidia’s management regarding demand.

Nvidia’s CEO Jensen Huang remarked, “Hopper demand remains strong, and the anticipation for Blackwell is incredible,” emphasizing strong future expectations.

Analysts see this positive outlook reflecting well on Taiwan Semiconductor Manufacturing (NYSE:TSM), the world’s largest chip manufacturer. Huang reassured investors that Nvidia would have “lots and lots of supply” in the fourth quarter, helping to address current supply challenges. This sentiment aligns with TSMC’s report indicating that their CoWoS capacity is expected to double in 2024 and 2025.

Citi’s estimates suggest that TSMC’s CoWoS capacity increased to 25kwpm by the end of Q2 2024, from 10-15kwpm in Q1 2024, with projections to reach 35kwpm by year-end and 70kwpm by late 2025.

The analysts also noted TSMC’s recent acquisition of Innolux’s Fab in Tainan might further double CoWoS capacity in 2026 compared to 2025.

Additionally, Citi observed increasing Cloud Service Provider (CSP) investments in AI, along with rising enterprise AI demand. Consequently, they estimate TSMC’s AI compound annual growth rate (CAGR) will exceed the company’s guidance of over 50%, projecting that AI will contribute over 20% of TSMC’s revenue in 2024, ahead of the prior target of 2028.

In Q2 2024, high-performance computing, driven by AI, represented 52% of TSMC’s revenue, marking the first occasion it contributed more than half.

Citi analysts remarked, “We expect Nvidia will continue to be the biggest contributor to TSMC’s AI business and will share over 50% of its CoWoS capacity allocation,” maintaining a Buy rating on TSM stock.

Similarly, Bank of America analysts also reiterated a Buy rating on TSMC, noting that the outlook is consistent with their expectations. They highlighted strong AI demand, increasing but still limited CoWoS supply, and that the Blackwell launch is on track for the year’s end.

Bank of America concluded, “NVIDIA suggests abundant return on investment shifting from general-purpose to accelerated computing for the industry, and we see substantial benefits anticipated for TSMC, the go-to supplier of GPU/ASIC ICs and CoWoS packages that will benefit significantly from NVIDIA’s robust growth.”