Morgan Stanley raised its price target for shares of Taiwan Semiconductor Manufacturing Company (TSM) on Monday, citing rising demand for AI semiconductors following the announcement of Apple Inc.’s new artificial intelligence strategy. (NASDAQ:).
They set the new price target for TSMC at NT$1,080, which indicates a potential upside of around 17% from the stock’s current price. Analysts at Morgan Stanley said this new target reflects expected growth in demand for Apple’s artificial intelligence processing chips, which are used in cloud computing servers and consumer electronics devices, such as iPhones.
In the short term, TSMC could experience profit margin compression in the second half of 2024, due to lower profit margins associated with Apple’s 3-nanometer semiconductor wafers. Furthermore, it is possible that TSMC’s sales will decline month-over-month in June, due to continued weakness in demand for non-AI-related products.
However, Morgan Stanley maintains an optimistic view on future demand for Apple’s proprietary processing chips starting in 2025, which aligns with Apple’s roadmap for introducing new server-based language processing models that will run on servers equipped with Apple-owned chips.
At the 2024 Worldwide Developers Conference (WWDC), Apple announced its “Apple Intelligence” core models, confirming Morgan Stanley’s previous supply chain analysis. The M2 Ultra chips, manufactured by TSMC with 4-nanometer process technology, are expected to contribute approximately $2 billion to TSMC’s revenue in 2024, accounting for nearly 2% of TSMC’s total revenue.
“With the growing number of private cloud computing users, we expect Apple to use 3-nanometer Apple Silicon M3 or M4 chips to produce more AI server chips in 2025,” the analysts said in their report .
“Furthermore, in 2026, Apple is likely to implement TSMC’s 2-nanometer and system-on-integrated-chips (SoIC) technology to develop an even more powerful chip for AI servers,” they continued.
The upcoming iPhone 16 Pro is expected to include a more advanced A18 Pro processor that will improve the computing capabilities of the Edge AI. The processor, which is expected to be 15-20% larger than its predecessor, the A18, is designed to integrate additional units for graphics processing and artificial intelligence calculations. A 15% increase in the use of semiconductors within iPhone processors could lead to a 3% increase in TSMC’s revenue, considering that iPhone processors represent 20% of TSMC’s revenue, as noted by Morgan Stanley .
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