Morgan Stanley and JP Morgan unanimously optimistic about Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US): Q2 revenue guidance exceeds expectations, denying that the establishment of a joint venture is a major positive.

After Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) announced its first quarter financial report for 2025, JPMorgan and Morgan Stanley released research reports successively, stating that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR provided revenue guidance for the second quarter that exceeded expectations, and the company denied that establishing joint ventures or technology transfers with any company was a major positive development. Specifically, JP Morgan stated in its report that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's performance in the first quarter exceeded expectations, with strong gross margins (especially in the context of earthquake impacts and rising costs in US factories). The company's revenue guidance for the second quarter also significantly surpassed their expectations, with revenue for the second quarter expected to increase by 13% compared to the previous quarter in US dollars, far exceeding the bank's original estimate of 7% mainly due to strong demand for the N3 and N5 processes, and some customers engaging in pull-ins. The bank also noted that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's N2 process is gaining momentum, with the number of wafers produced in the first two years surpassing the same period for the N3 process. In addition to the positive news of revenue guidance exceeding expectations for the second quarter, there are other favorable factors. JP Morgan stated that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR maintained its full-year revenue growth expectations for 2025, despite the implied slower growth in the second half of 2025 compared to the past ten years, reflecting the company's cautious attitude towards macroeconomic slowdown and tariffs, which may have a suppressing effect to some extent. However, the company maintained its full-year capital expenditure guidance for 2025 at $38 billion to $42 billion. Furthermore, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR reiterated its long-term revenue growth expectations. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR expects the company's overall revenue to compound annually by about 20% by 2029, with a median revenue growth rate of 40% for its AI accelerator business. The company also reiterated its long-term gross margin target of 53% or higher. It is worth noting that JP Morgan believes that the most significant positive outcome of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's latest financial conference call was the denial by the company's chairman and CEO, Wei Zhekai, of any joint venture, technology transfer, or intellectual property sharing agreements with any company (JP Morgan believes this primarily refers to Intel Corporation), which has been a major uncertainty affecting Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's stock price for the past two months. Considering the level of concern in the market that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR being forced to establish a joint venture with Intel Corporation would result in significant resource outflow, JP Morgan views this as a major positive development. However, JP Morgan also pointed out some unfavorable factors facing Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, including: the potential impact of increased costs and tariffs (mainly related to semiconductor equipment and raw material imports), the potential higher dilution of gross margins in the later stages of the expansion of the company's US wafer factory (from 200-300 basis points to 300-400 basis points); in the context of a deteriorating macroeconomic environment, the company's failure to adjust its full-year guidance for 2025 may cause anxiety among investors, and an appropriate adjustment may receive a more positive market response; and the balance between supply and demand for CoWoS (advanced packaging) in 2026 may raise questions in the market about whether demand for AI has peaked. Overall, JP Morgan believes that with the clarification from Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR management regarding concerns in the market about establishing joint ventures with any company, the stock price of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR may rise by 3%-5% in the short term, although concerns about future performance revisions may still exist. JP Morgan maintains a "hold" rating for Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's stock listed in Taiwan, with a target price of NT$1,300, representing approximately 53% upside potential from the stock's closing price on April 17th. Morgan Stanley stated that TaiwanSemiconductor Manufacturing Co., Ltd. Sponsored ADR's second quarter revenue guidance is better than expected (the bank originally expected a 4% increase in revenue compared to the previous quarter), and the second quarter gross margin guidance (58%) is in line with its expectations; Capital expenditure for 2025 remains unchanged, reflecting optimism for 2026; The company's long-term revenue growth expectations for the AI accelerator business reflect a healthy demand for AI. Morgan Stanley also pointed out that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR management denied the establishment of joint ventures or technology transfers with any company, which "dispelled the haze."Morgan Stanley's rating for Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR listed in Taiwan is "hold," with a target price of NT$1288, representing approximately 52% upside from the closing price on April 17th. Morgan Stanley stated that the upside risks for this forecast include: Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR raising prices to major customers, maintaining a long-term gross margin of over 53%; AI demand growing higher than expected, with Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR maintaining its leading market share in advanced processes; and Intel Corporation further outsourcing CPU production in 2025-2026. The downside risks for this forecast include: weakening demand for advanced processes; and rising costs for overseas wafer fabs.