Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's performance and guidance exceed expectations, Morgan Stanley remains bullish.

On April 16, 2026, Morgan Stanley released a report interpreting the latest financial report of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US), maintaining an overweight rating with a target price of NT$2288, offering a 10% upside potential from the current price. Morgan Stanley clearly sees the core position of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR in the field of AI chip manufacturing and believes that the first-quarter performance and second-quarter guidance are both well above expectations, further strengthening the long-term investment logic. The core highlight of this financial report is the upward revision of both performance and guidance. The latest financial report performance of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR showed a staggering 58% increase in net profit in the first quarter, reaching NT$572.5 billion (approximately USD 18 billion), significantly higher than analysts' average expectation of NT$542.4 billion, which has been continuously revised upwards by analysts since February. The projected guidance given by Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR management also outperformed the recently revised market average expectations. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR expects total revenue growth to exceed 30% this year, higher than the previous expectation of less than 30% and the market's general expectation of 25%-28%. The company executives also stated that due to the strong demand for AI chips and advanced packaging, capital expenditures will approach the upper limit of the previously forecast range (up to USD 56 billion), and emphasized that future capital expenditures over the next 3 years will be significantly higher than in the past 3 years, indicating their confidence in future growth prospects. In the first quarter of 2026, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR achieved a gross margin of 66.2%, significantly higher than Morgan Stanley's expected 64.2%; the second-quarter revenue guidance is a 10% increase over the previous quarter, surpassing the market's consistent expectation of 5%-10%, and the midpoint of the gross margin guidance of 66.5% also exceeds institutional forecasts. Despite the sluggish PC and smartphone terminal markets and macroeconomic uncertainties, the strong demand for AI-related chips has become the core support for Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's performance. Morgan Stanley raised Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's full-year revenue growth forecast for 2026 to over 30% year-on-year, close to the previous estimate of 35%, confirming the high prosperity of the AI track. In terms of capital expenditures, driven by the strong demand for 3nm process AI chips and HBM base chips, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR raised its capital expenditures to the upper limit of the range of USD 52-56 billion for 2026. While no specific expectation of a three-year USD 200 billion investment plan was given, the management clearly stated that future capital expenditures will continue to increase, and deep cooperation with equipment manufacturers such as ASML will ensure capacity expansion. Morgan Stanley believes that this adjustment reflects Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's confidence in the long-term demand for AI chips, and advanced process capacity will continue to be in short supply. Regarding the competitive landscape, Morgan Stanley emphasizes that the advanced process barriers of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR are difficult to break through. New entrants such as SMIC have no shortcuts, and it takes many years to accumulate advanced manufacturing technology. Faced with competition from Intel Corporation's EMIB packaging technology, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR adopts an open and steadfast strategy: on the one hand, it opens up computing chiplets to third-party packaging to expand the AI semiconductor market; on the other hand, it sticks to providing CoWoS packaging solutions at a reasonable cost without giving up core values, consolidating its leading edge in advanced packaging. On the valuation and profit level, Morgan Staley raised Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's EPS for 2026-2027 to NT$95.60 and NT$116.57, with a price-to-earnings ratio of 21.8 times in 2026, making the valuation attractive. The report predicts that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's first-quarter performance and second-quarter guidance are in line with the most optimistic scenario assumptions, and the stock price is expected to rise by 3%-5% in the short term. In terms of risks, upside catalysts come from AI demand exceeding expectations, maintaining a high market share in advanced processes, and an increase in outsourcing by Intel Corporation. Downside risks include industry inventory adjustments in 2026, weakening demand for advanced processes, and rising costs for overseas factories. Overall, Morgan Stanley believes that with the dual drives of AI chips and advanced process, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR has strong performance certainty and a solid competitive barrier, making it the core preferred target in the semiconductor sector.