Morgan Stanley: TSMC — Stronger Capex to Narrow AI Chip Shortage; Reiterate Overweight
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Following TSMC's impressive 4Q25 earnings, Morgan Stanley reiterates an Overweight rating and raises its target price by 5% from NT$1,988 to NT$2,088. Management emphasized that silicon supply, rather than power availability, remains the primary bottleneck for AI developers. Consequently, TSMC increased its AI semiconductor CAGR assumption from 45% to a range of 55-59% for the 2024-2029 period.
To address this structural demand, TSMC provided 2026 capital expenditure guidance of US$52-56 billion, significantly higher than Morgan Stanley's previous US$49 billion estimate. The firm projects capex will further expand to US$59 billion in 2027. This aggressive capacity expansion aligns with management's upgraded long-term gross margin target of 56% and above. Morgan Stanley subsequently raised its long-term gross margin assumption for TSMC from 60% to 63%, noting that structural price hikes and AI-driven productivity gains are key catalysts.
Overall 2026 revenue is guided to grow nearly 30% year-over-year, outpacing the prior 25% estimate. The 1Q26 gross margin outlook stands at an impressive 63-65%. Morgan Stanley views current valuations as highly compelling, with the stock trading at just 15 times the 2027E EPS of NT$112.46. TSMC remains a top pick, offering 24% upside from the current share price of NT$1,690. Key risks include potential AI industry consolidation and shifting computational efficiency paradigms that could alter long-term hardware demand.