Taiwan's TSMC, the world's largest foundry (contract semiconductor manufacturing) corporation, is projected to achieve 'quantum jump' levels of growth next year. Analysts state that it has entered a virtuous cycle of maximizing profitability by implementing price increases based on its unparalleled technological prowess. Following its recent earnings announcement, global investment banks raised their target stock prices by about 25% based on this outlook.
Major global investment banks noted that in the two days following TSMC's second-quarter (April to June) earnings conference call held on the 17th, they analyzed that TSMC is expected to widen its technological gap with competitors next year. According to market research firm TrendForce, TSMC's market share as of the first quarter was 67.6%, already nearly 60 percentage points (P) ahead of the industry's second-ranked Samsung Foundry (7.7%).
Citi Securities projected that TSMC will start large-scale mass production of its 2-nanometer (1 nanometer is 1 billionth of a meter) process in the second half of 2026, along with the mass production of the next-generation process, A16 (1.6-nanometer level), without any issues. TSMC's roadmap indicates that it anticipates entering mass production of 2-nanometer in the second half of this year, and unveiling both the enhanced 2-nanometer (N2P) and A16 processes simultaneously in the second half of next year. This is one year earlier than Samsung Electronics' target timeline for mass production of its 1.4-nanometer process, which is set for 2027.
Goldman Sachs analyzed that TSMC's 2-nanometer process will contribute to revenue more quickly and on a larger scale than the previous generation 3-nanometer process, driven by strong demand in the institutional sector for high-performance computing. Wei Zha, TSMC's Chief Executive Officer (CEO), stated during the second-quarter earnings conference call that 'the 2-nanometer process has higher energy efficiency and defect density management levels than the previous generation,' adding that 'the number of initial customers reaching tape-out (design completion) is greater than at the same point for the 3-nanometer and 5-nanometer processes.' He continued, 'In the second year of mass production, the revenue contribution from the 2-nanometer process will exceed that of the 3-nanometer process, and profitability will also be higher.' The industry expects that Apple's major customer, TSMC, is likely to adopt the 2-nanometer process for all new products starting next year.
High demand is expected to strengthen TSMC's advantage in future price negotiations and act as a factor that boosts profitability, according to Wall Street. JP Morgan stated, 'After the performance pressure due to the appreciation of the Taiwanese dollar and the initial cost burden from the operation of new overseas factories peaks in the fourth quarter of this year, a significant profit improvement phase will begin next year.' The key driver is the increase in average selling prices (ASP) of products. Based on chronic supply shortages in advanced processes and advanced packaging CoWoS (chip on wafer on substrate), Goldman Sachs adjusted its outlook upwards, forecasting that next year's prices for 5-nanometer wafers and CoWoS will rise by 7% and 8%, respectively.
The earnings guidance provided by TSMC also supports this positive outlook. TSMC reported a net profit of 398.3 billion Taiwanese dollars (approximately 18.88 trillion won), which is about a 60% increase year-on-year in the second quarter, and provided a revenue guidance for the third quarter of 31.8 to 33 billion dollars (approximately 44 to 46 trillion won), exceeding market expectations. Wendel Huang, TSMC's Chief Financial Officer (CFO), noted that 'for every 1% increase in the Taiwanese dollar against the U.S. dollar, the company's revenue will decrease by 1%. However, despite unfavorable exchange rates, we can sufficiently achieve a gross profit margin above 53% in the long term.'
TSMC also raised its annual revenue growth forecast (in dollars) from the previously expected 20% range to 30%. Wei Zha, the CEO, explained that 'the demand related to AI is very strong and shows no signs of slowing down.' In fact, demand related to AI is becoming even more robust. JP Morgan has analyzed that the demand for 'sovereign AI,' where various governments and corporations build their own AI infrastructure beyond existing cloud companies, is emerging as a new growth driver. Nomura Securities reported that 'TSMC's customers are viewing securing the necessary quantities of cutting-edge semiconductors next year as a larger business risk than the uncertainty of tariffs going forward.'