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Interface News reporter | Li Biao

Jiemian News Editor | Wen Shuqi

After suffering a heavy blow from the "Black Monday" in global stock markets, TSMC's stock price fell by more than 10% in a record single day, but the capital market remains optimistic about the prospects of this chip giant.

On August 6, according to the latest report from Digitimes, IC design industry insiders revealed that TSMC's advanced process products will not only increase in price in 2024. In late July, TSMC notified several customers that due to soaring costs, the prices of 5nm and 3nm process products will increase again from January 2025. The increase will be about 3-8% depending on the wafer production plan, products and partnerships.

Jiemian News contacted TSMC to verify the price increase rumors. The company responded that it would not comment on price issues and stated that TSMC's pricing strategy has always been strategy-oriented rather than opportunity-oriented.

The capital market has always viewed the price increase of TSMC's advanced process products as good news. Morgan Stanley analysts also listed TSMC as their top pick in the latest report released today. The agency believes that although the market has recently triggered a sell-off of technology stocks due to investors' panic over the global economic recession, TSMC's valuation is still attractive.

Morgan Stanley analyst Charlie Chan wrote in a report that institutions are optimistic about TSMC's quality and defensiveness in the long-term semiconductor downcycle, and "confirmation of price increases and continued strength in AI capital expenditures should be key catalysts (for TSMC)."

In other words, price increases and increased capital expenditures by technology giants are TSMC's two most important "trump cards" this year.

In June this year, TSMC raised the prices of its 3nm and 5nm advanced process products for the first time, with the focus on the company's advanced process AI products and supporting advanced packaging solutions that are in short supply on the market. Among them, the prices of 3nm and 5nm AI products will increase by 5%-10%, non-AI products will increase by 0-5%, and the price of advanced packaging will increase by 15-20%.

TSMC's price increase quickly received positive responses from customers and the capital market.

First, TSMC's most important customer in the AI ​​field, Nvidia, took the lead in supporting the plan. In an interview, Huang Renxun said that considering TSMC's contribution to the world and the technology industry, the company's product and service prices were "too low" before. Subsequently, major customers such as Apple, Qualcomm, and AMD successively accepted the price increase plan.

Wall Street investment institutions such as Goldman Sachs and JPMorgan Chase are also optimistic about the boost to TSMC's performance from price increases, and have released reports raising their target prices. Goldman Sachs raised TSMC's target price by 19%, predicting that the company's 3-nanometer and 5-nanometer chip manufacturing prices will increase by a "low single-digit percentage"; Morgan Stanley and Citigroup also both raised TSMC's target price; JPMorgan Chase judged that TSMC may increase its revenue expectations for 2024.

It is worth noting that even with the price increase, TSMC's products and services are still in short supply.

According to Taiwan Electronic Times, the four major manufacturers, Apple, Qualcomm, Nvidia and AMD, have divided up TSMC's 3nm series process production capacity, and other customers are also queuing up to bid for related orders, and some orders are even scheduled until 2026.

TSMC's second-quarter financial report shows that the two generations of advanced processes, 3nm and 5nm, have contributed half of the company's revenue. This year is the year of the full implementation of 3nm. Customer demand is now "very strong", contributing 15% of the total wafer revenue in the second quarter, 9% in the first quarter, and only 6% in the whole of last year. 5nm and 7nm account for 35% and 17% respectively.

TSMC Chairman and President Wei Zhejia also said that due to the strong market demand, TSMC's current AI products and services cannot keep up with the changes in production capacity planning and are far from being able to achieve "supply and demand balance." According to his estimate, it is expected that it will take until a certain quarter in 2026 for the company to strive to achieve the goal of supply and demand balance.

However, the investment in AI by technology giants in the market has not yet peaked.

According to a report published by the British media Financial Times on August 6, in the first half of 2024, American technology giants including Microsoft, Amazon, Meta and Google's parent company Alphabet have significantly increased capital expenditures and increased investment in infrastructure in the field of artificial intelligence, with a total investment of up to US$106 billion. But this is just the beginning, and these giants have promised to further increase investment in the next 18 months.

Although there is no clear consensus on the business model and returns of AI investment, these technology giants are still scrambling to pay for AI investment. Meta CEO Mark Zuckerberg said in a conversation with Huang Renxun this week, "At this point, I would rather take the risk of building production capacity before it is needed than when it is too late."

As the world's number one chip manufacturer, TSMC almost monopolizes the industry's most advanced AI chip manufacturing and is one of the biggest beneficiaries of the technology giants' investment in AI infrastructure. After announcing a price increase in the middle of this year, the company's stock price quickly ushered in a wave of surges, rising 4.8% on July 8, and its market value exceeded US$1 trillion for the first time. Although the stock price has fallen sharply recently due to global stock market fluctuations, its stock price has risen by more than 43% since the beginning of this year.