Three major doubts cleared! Morgan Stanley is bullish on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) and reiterates its "overweight" rating.

Morgan Stanley released a research report stating that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) has addressed three major market concerns in the recent first quarter earnings conference call, and its stock price is expected to be re-rated. The firm remains optimistic about the future development of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, reaffirming its "overweight" rating on the Taiwan stock and maintaining a target price of NT$1288. In the report, Morgan Stanley mentioned that the future increase in the stock price of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR is mainly attributed to positive changes in the following three factors: Elimination of the possibility of a joint venture with a U.S. fab: Management of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR has explicitly stated that there are currently no discussions with other companies regarding joint ventures, technology licenses, or transfers. This statement eliminates investors' concerns about Intel Corporation's (INTC.US) joint venture plan, consolidating Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's leadership position in the long-term market. Strong demand for Artificial Intelligence (AI): Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR still maintains its target of achieving a compound annual growth rate (CAGR) of over 40% in AI semiconductor revenue over the next five years. Despite concerns in the market about CoWoS orders being reduced, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR expects its CoWoS capacity to double by 2025 and continue to grow in 2026. Limited impact of tariffs: Although concerns about semiconductor tariffs exist in the market, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's second-quarter revenue guidance shows a quarter-on-quarter growth of 13%, far exceeding the firm's expectation of 4%. Currently, tariffs have not had a significant impact on customer orders. In terms of financial data, the gross profit margin of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR in the first quarter of 2025 was 58.8%, exceeding market expectations, mainly due to strong demand for 3nm and 5nm processes. The gross margin for the second quarter is expected to be 58% (median), slightly lower than the first quarter but still at a healthy level. Morgan Stanley predicts that the earnings per share (EPS) of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR will maintain stable growth from 2025 to 2027, with a projected compound annual growth rate of over 20% from 2024 to 2027. Looking at the risks and opportunities, if new tariff policies are introduced, global semiconductor demand may decrease, requiring Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR to adjust its 2025 revenue guidance. However, in the long term, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR has significant advantages in the field of AI, with contributions from cloud AI semiconductor revenue expected to continue to grow, reaching 34% by 2027. If broader AI semiconductor revenue is included, the percentage of related revenue is expected to exceed 30% from 2025 onwards. However, there is uncertainty in the expansion of CoWoS capacity in 2026. Based on the current situation, Morgan Stanley conservatively estimates capacity to be 700,000 wafers per month in 2025 and 900,000 wafers per month in 2026.