Amidst rumors of a price hike, the share prices of TSMC and Nvidia “flew together.”
On June 6, TSMC’s U.S. stock rose by nearly 6%, reaching a new closing high, and TSMC’s Taiwan stock rose by 4.68%. Along with TSMC, Nvidia also set a new record for its share price. On the same day, Nvidia rose by more than 5% to reach a new historical high, with a total market value of over US$3 trillion, surpassing that of Apple. The lithography machine giant ASML also rose by 9.5%.
In terms of news, on June 5, TSMC held a board meeting and approved a capital budget of US$17.356 billion to increase its advanced process capacity. Meanwhile, the board of directors announced a repurchase of 3.249 million shares of the company’s stock to offset the share dilution caused by the issuance of restricted employee stock rights, with a repurchase price range of NT$598 to NT$1,281 per share. TSMC said it will cancel the repurchased shares to protect shareholder interests.
In addition to its own actions, TSMC also received “external assistance” from Nvidia CEO Jensen Huang. At an investor luncheon for the Taipei Computer Show on the 5th, Morgan Stanley asked Huang how he viewed TSMC’s request to raise prices. Huang replied, “I think TSMC’s price is too low… TSMC’s contribution to the world and the technology industry is undervalued, judging from its financial report.” Nvidia has now become TSMC’s second-largest customer, accounting for 10% of TSMC’s revenue in 2024.
Huang also said he will support TSMC’s price increase for wafers and CoWoS (TSMC’s 2.5D/3D packaging technology).
Morgan Stanley also raised its target price for TSMC from NT$928 to NT$980, maintaining an “overweight” rating, and expressed optimism that TSMC will be able to pass on increased costs to customers.
Taiwanese media reported that the two sides will negotiate wafer prices for next year, which is expected to further boost TSMC’s revenue and gross margin level.
Nvidia is one of TSMC’s most important foundry customers. Nvidia’s H and B series GPUs both use TSMC’s 4nm process. Huang emphasized that in addition to manufacturing chips, TSMC also handles many problems related to the supply chain, and recognized that the current offer price is too low, indicating that he will support TSMC’s offer price increase.
However, if TSMC raises prices, this will have a relatively negative impact on the big technology companies that use TSMC for foundry. Taiwan media reported that semiconductor manufacturers said that Nvidia’s financial report for the most recent quarter showed a gross margin of 78.36%, far higher than AMD’s 46.78%, and 25 percentage points higher than TSMC’s first-quarter gross margin of 53.07%. If TSMC raises its foundry prices for advanced processes, Nvidia’s gross profit margin will remain unaffected; however, for other manufacturers investing in TSMC’s advanced processes, including Apple, AMD, and Qualcomm, this will dilute their gross profit margins.
In addition to advanced processes, the packaging process is also extremely important for AI chip production, and can even be said to be a key factor in winning out in the market.
Last year, TSMC’s advanced packaging capacity was inadequate, and both ODM and OEM manufacturers were waiting for supply. Although there was some easing in the first quarter of this year, market demand is still not being met. TSMC also confirmed that demand is strong, and even expanding production of its 3nm process from 5nm by three times is not enough, and the production capacity scale will inevitably be expanded.
Industry insiders predict that by the end of this year, TSMC’s CoWoS monthly production capacity is expected to reach 45,000 to 50,000 wafers, while SoIC can reach 5,000 to 6,000 wafers.
Morgan Stanley pointed out that TSMC needs to raise wafer prices in order to keep its gross profit margin above its target of 53% in 2025 and 2026. Morgan Stanley expects that the average selling price (ASP) of 3nm wafers will increase by 11%, that of 4nm wafers will increase by 3%, and that of CoWoS could increase by 20%.
Barclays analysts are optimistic that the pace of 2nm applications, which are soon to be mass-produced, will be faster than expected. Barclays believes that the leadership in semiconductor applications is shifting from smartphones to data centers, and that “strong demand for 2nm will be a significant boon to TSMC.” Barclays raised its target stock price for TSMC’s ADR from $150 to $170 and maintained an “overweight” rating.