TSMC $TSM, the world's largest foundry chip manufacturer, will announce its second-quarter results for fiscal 2024 before the market opens on July 18, Eastern Time.

According to Bloomberg analysts' expectations, TSMC's Q2 revenue was $20.07 billion, up 28% year-on-year; earnings per share was $1.39, up 33% year-on-year . Recently, a total of 14 analysts gave a "buy" rating or above, with an average target price of $173.07.

It is worth mentioning that driven by the AI boom, TSMC's market value exceeded the $1 trillion mark for the first time on July 8, ranking eighth in the world, surpassing Buffett's Berkshire Hathaway and Tesla. Since the price increase news came out last month, TSMC's US stocks have risen by more than 80% this year.

TSMC's price increase is supported by strong demand for 3nm chips! Profit prospects are positive

Like Nvidia, with the sharp increase in demand for AI applications and computing chips, TSMC's advanced process chips are favored by the market and the market is extremely hot. According to the latest sales report of the wafer foundry giant, revenue in June reached NT$207.9 billion (US$6.4 billion), bringing net revenue in the second quarter to NT$673.5 billion, a year-on-year increase of 40%, which exceeded the market average expectation of 35.5%.

A survey by TrendForce in June further showed that driven by high-performance computing (HPC) applications such as AI applications, new PC platforms, and new high-end smartphones, TSMC's 5/4nm and 3nm process production lines are already operating at full capacity. It is expected that the capacity utilization rate will exceed 100% in the second half of this year , and orders have been placed until 2025.

At the same time, media reports also pointed out that many technology giants including NVIDIA, AMD, Intel, Qualcomm, MediaTek, Apple and Google have begun to adopt TSMC's 3nm process technology, and customer orders have been scheduled until 2026 , showing the market's extremely high demand for TSMC's advanced process chips.

In addition, TSMC's 2nm chips have also made big news. According to Taiwanese media reports, TSMC plans to start testing and producing 2nm chips next week and apply them to Apple chips in its next-generation products; it is expected to start mass production of these 2nm node process chips in 2025. As TSMC's largest customer, Apple's large demand for 2nm chips will greatly benefit TSMC's revenue .

Currently, 70% of TSMC's revenue comes from advanced process chips below 16nm, of which 3nm accounted for about 6% last year, 5nm and 7nm contributed 33% and 19% respectively. Another 20% comes from mature process chips above 28nm. As the company is pushing for the popularization of 3nm in the advanced process field and striving for 2nm, the proportion of revenue from advanced process chips will increase in the future.

Faced with cost pressures such as factory expansion and rising electricity costs, TSMC will adjust the prices of its advanced process chips . According to people familiar with the matter, TSMC plans to increase prices for products with 3/5nm process technology from January 1, 2025, while prices for other processes will remain unchanged. TSMC intends to increase prices of AI products with 3/5nm process by 5% to 10%, while prices of non-AI products will increase by 0% to 5%, and prices of advanced packaging will increase by 15-20%.

Previously, Nvidia CEO Huang Renxun also publicly supported TSMC when talking about it. Given TSMC's huge contribution to the global technology industry, he believes that TSMC's value is underestimated from the financial report. In response to Morgan Stanley's question about TSMC's plan to increase the price of its products and services, Huang Renxun firmly expressed his support and pointed out that Nvidia's previous price setting was indeed too low.

According to supply chain surveys, Macquarie pointed out in its latest report that most of TSMC's customers have agreed to raise foundry prices in exchange for reliable supply , which will drive TSMC's gross profit margin to rise further. According to Macquarie analysts' estimates, TSMC's gross profit margin will rise to 55.1% in 2025 and will approach 60% in 2026, reaching 59.3%. Its gross profit margin this year has been raised to 52.6% due to improved production efficiency.

In TSMC's upcoming second-quarter earnings report, investors should focus on the following areas:

• Bargaining power of advanced process and packaging technology: TSMC’s price increase strategy and ability in the face of strong demand for 3nm process and CoWoS packaging technology
• Capex plans : TSMC is likely to announce increased capex, especially for capacity expansion for 3nm and 2nm process technologies
• Capacity optimization strategy: In addition to promoting capacity expansion of advanced technologies, TSMC may also discuss how to optimize its existing 7nm process technology capacity
• Market demand analysis: TSMC may share more insights into the AI and smartphone chip markets, including drivers of demand growth

Major banks collectively bullish before earnings! TSMC stock price is expected to reach new heights

Top Wall Street investment banks have recently raised their target prices for TSMC. Analysts generally believe that the boom in artificial intelligence is driving strong demand for advanced process chips, significantly improving TSMC's bargaining power ; it is expected that by 2025, the sharp increase in 3nm-level process and advanced packaging foundry prices will bring TSMC rich profits, further boosting the company's performance and market valuation.

Wall Street has reached a consensus on the expectation that TSMC's stock price will break through NT$1,000. The target stock price forecasts given by mainstream investment banks are as follows: HSBC has the highest forecast, with a bullish target price of NT$1,370; Macquarie has a bullish target price of NT$1,280; Goldman Sachs has a bullish target price of NT$1,160; Citigroup has a bullish target price of NT$1,150; Barclays has a bullish target price of NT$1,096; JPMorgan Chase and Morgan Stanley have forecasts of NT$1,080 and NT$1,070 respectively; and Bank of America has a bullish target price of NT$1,040.

Citigroup expects that with the rapid development and iteration of AI large model technology and the expanding scope of application, TSMC will fully benefit from the strong demand for chips in data centers and edge AI , especially in more advanced 3nm and 2nm or below chip manufacturing processes. Morgan Stanley expects that TSMC's customers generally agree to increase the price of foundry contracts to ensure stable supply, indicating that gross profit margins will rise year by year . JPMorgan Chase expects TSMC to " raise its revenue forecast for 2024 and may increase capital expenditures to the high end of the expected range " and expects artificial intelligence to account for 35% of total revenue by 2028.

According to TipRanks data, looking back at TSMC's past eight quarters, six of them had revenues that exceeded market expectations, and the average stock price change after the earnings announcement was ±4.9% , with the largest increase of +9.79% and the largest decrease of -5.05% . The probability of a rise on the same day is 75%.

Focus on relevant investment targets

TSMC’s financial report is approaching. What other related industry concept stocks are worth paying attention to?

	Stock Name	Stock Code
AI chip related	Nvidia	$NVDA
	Intel	$INTC
	AMD	$AMD
	Micron Technology	$MU
	ARM Holdings	$ARM
	Qualcomm	$QCOM
TSMC's major customers	apple	$AAPL
	Nvidia	$NVDA
	Broadcom	$AVGO
	Qualcomm	$QCOM
	Advanced Micro Devices	$AMD
	MediaTek
	Intel	$INTC
	Sony	$SONY
	Marvell Technology	$MRVL
	Amazon	$AMZN

The following semiconductor industry-related ETFs are worth investors' attention:

ETF Name	Code
Semiconductor Index ETF - VanEck	$SMH
Semiconductor ETF - Invesco	$PSI
Philadelphia Exchange Semiconductor ETF - iShares	$SOXX
3x Long Semiconductor Index ETF-Direxion	$SOXL
3x Short Semiconductor Index ETF-Direxion	$SOXS

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