J.P. Morgan says investors should overlook any near-term softness in the chip business and buy Taiwan Semiconductor Manufacturing Company shares for the company’s robust future prospects.
On Tuesday, analyst Gokul Hariharan reiterated his Overweight rating for TSMC (ticker:TSM). The analyst also reaffirmed his $650 Taiwan dollar price target for TSMC’s Taiwan-traded shares. The forecast represents about 33% upside from current levels in TSMC’s American depositary receipts.
“TSMC is now firmly positioned as the key enabler of the new computing revolution in the semiconductor industry, with multiple architectures, chip platforms and design teams competing to push computing and AI innovation,” he wrote. “Despite a 2023 downturn, we see strong long-term growth in the next few years.”
Hariharan predicts TSMC may face additional order cuts in the first half of next year because of deteriorating demand in the smartphone and computer end-markets. But the analyst said investors should focus on the company’s sustainable leadership in bringing new advanced chip-making capabilities to its customers.
He is also optimistic over TSMC’s plans to expand its chip-making capacity outside of Asia. The analyst estimates the company will eventually build 10% to 15% of its advanced chip making technologies in the U.S.
“We expect the company’s accelerated U.S. capacity expansions to alleviate market concerns of potential share losses from a worsening geopolitical landscape,” he wrote.
Taiwan accounts for more than 90% of the world’s most advanced chip manufacturing, with South Korea at 8%, according to a report last year from the Semiconductor Industry Association and the Boston Consulting Group. Most of the capacity comes from TSMC, which was established in 1987, and has pioneered the business model of making chips for external customers.
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