Morgan Stanley Increases TSMC Price Target Due to Rising AI Demand from Apple
Morgan Stanley has raised its price target for Taiwan Semiconductor Manufacturing Company (TSMC) stock, citing increased demand for AI semiconductors following Apple's recent AI strategy announcements. The new price target is set at NT$1,080, which indicates a 17% potential upside from current levels.
Anticipated Higher Demand for AI Chips
Morgan Stanley analysts believe that the adjustment reflects the anticipated higher demand for Apple's AI chips used in cloud servers and edge devices like iPhones. These technologies are crucial for meeting the rising need for artificial intelligence in various applications.
Short-Term Challenges
Despite the positive outlook, TSMC could face some margin pressures in the second half of 2024. This is mainly due to the influence of Apple's 3nm wafer. Additionally, a potential month-over-month sales decline in June is expected as non-AI demand remains weak.
Positive Future Outlook
Looking ahead, Morgan Stanley sees a positive outlook for Apple Silicon demand starting in 2025. This aligns with Apple's plans to introduce server-based language models that will run on Apple silicon servers.
Apple's announcement at its 2024 Worldwide Developers Conference about the new 'Apple Intelligence' Foundation Models has confirmed Morgan Stanley's earlier supply chain analysis. The M2 Ultra chips, produced by TSMC using 4nm technology, are projected to generate around $2 billion in revenue in 2024, accounting for approximately 2% of TSMC's total revenue.
Technological Advancements
“With the expanding user base for Private Cloud Compute, we expect Apple to utilize the 3nm Apple Silicon M3 or M4 to make more AI server chips in 2025,” analysts mentioned in their note.
Furthermore, in 2026, Apple may adopt TSMC’s 2nm and SoIC technology to develop a more powerful Apple Silicon chip for AI servers.
Upcoming iPhone Enhancements
The upcoming iPhone 16 Pro is expected to feature an enhanced A18 Pro processor designed to support Edge AI computing. This processor may be 15-20% larger than the previous A18 model, incorporating additional graphics and AI computing units. A 15% increase in semiconductor content within iPhone processors could result in a 3% revenue boost for TSMC, considering that iPhone processors make up 20% of TSMC's revenue, Morgan Stanley noted.
In conclusion, while TSMC may face short-term challenges, the long-term outlook remains positive, driven by increased demand for AI technology and advancements in Apple's Silicon chips.
