TSMC, the leading wafer foundry, will hold its third quarter 2025 earnings conference on the 16th and will announce its third quarter financial report. On the eve of the conference, many major domestic and foreign foreign capital and legal institutions, including Fubon, HSBC (HSBC), Morgan Stanley (MS), Goldman Sachs (GS), JPMorgan Chase (JPM), UBS (UBS) and Macquarie (MQ), were optimistic about its performance and raised their target prices and profit estimates. Institutions generally believe that TSMC's revenue and gross profit margin will be better than expected due to the multiple benefits of continued strong demand for AI, rising prices for advanced processes, and recent favorable exchange rate conditions.

The target price of foreign investors was revised upwards strongly, and HSBC called a sky-high price of 1,800 yuan.

According to the latest foreign investment reports, various institutions generally give TSMC an investment rating of "Buy" or "Outperform" (OW). In terms of target prices, all institutions revised their target prices upward.

HSBC Securities raised its target price significantly from 1,305 yuan to 1,800 yuan, ranking first among foreign investors. Fubon Securities raised its price from 1,320 yuan to 1,650 yuan. Macquarie raised its price from $1,310 to $1,620. Goldman Sachs raised its price from 1,370 yuan to 1,600 yuan. Morgan Stanley raised the price from 1,388 yuan to 1,588 yuan. UBS raised its price to $1,570 from $1,350. JPMorgan Chase maintained its target price of 1,550 yuan.

In terms of profit estimates, various institutions have also simultaneously raised their EPS expectations for 2025 and 2026. For example, Fubon raised its EPS in 2025 and 2026 to 61.75 yuan and 74.51 yuan respectively. Morgan Stanley has the highest EPS estimate for 2026, reaching 74.85 yuan.

The third quarter performance is expected to be strong, with full-year revenue growth expected to be 35%

Institutions generally expect TSMC’s third-quarter revenue to perform better than expected. Fubon pointed out that 3Q25 revenue was better than expected mainly due to the continued strong demand for AI, seasonal purchases by smartphone customers, and the recent favorable foreign exchange market. In terms of gross profit margin (GM) estimates, Fubon estimates that it will be as high as 58.9%. Followed by Morgan Stanley's 58.4%, Goldman Sachs and Macquarie both estimated 58.0%. JPMorgan Chase is relatively conservative, with a forecast of 57.3%.

Looking forward to the fourth quarter revenue estimates, the expectations of various institutions are slightly different. Morgan Stanley forecasts fourth-quarter revenue of 987.5 billion yuan, a quarterly decrease of only 0.5%. Goldman Sachs will increase 1.5% quarterly to 968.2 billion yuan. However, Fubon's forecast of a quarterly decrease of 2%, HSBC's forecast of a quarterly decrease of 6%, and Macquarie's forecast of a quarterly decrease of 2% are declines from the third quarter. Regarding the full-year revenue outlook, Fubon believes that TSMC will once again raise its full-year performance outlook, and the full-year US dollar revenue growth is expected to reach 30% to 35%. Morgan Stanley estimates that U.S. dollar revenue will increase by 33% annually in 2025.

Price increases have become the core of TSMC's profit revision, and capital expenditures may increase

The increase in wafer prices for advanced processes is the core basis for various institutions to upwardly revise their profits. The market consensus is that price increases for advanced processes have become the norm, and AI/HPC has increased by 10%. In terms of Fubon, it is believed that TSMC has completed price negotiations with all customers, AI/HPC will increase prices by 10%, consumer products will increase prices by low to mid-single digits, and Apple wafer prices will remain unchanged as usual. As for HSBC, it is expected that TSMC will increase the price of advanced processes by 10% to 15% again in 2026 to offset the rising costs of U.S. production expansion, and is optimistic about the potential of normalizing this model.

Morgan Stanley said that because NVIDIA's upcoming Rubin chip may use TSMC's 3nm process, and the Netcom chip schedule is advanced, the supply of 3nm wafers will be tight. Therefore, it is expected that TSMC may increase the price of 3nm wafers in 2026 by at least 5%. Macquarie also believes that TSMC is expected to increase its 3nm and 5nm quotations starting from the first quarter of 2026. According to Macquarie's analysis, if the average selling price of 3nm and 5nm increases by 10%, the gross profit margin is expected to increase by about 1 percentage point, which is enough to offset the negative impact of overseas expansion capital expenditures.

Demand for advanced processes has exploded, and various institutions generally expect TSMC’s capital expenditures to increase significantly in 2026. Capital expenditures in 2025 will remain at US$38 billion to US$42 billion. In terms of capital expenditures in 2026, Fubon's latest survey and analysis shows that due to the booming demand for 2-nanometer series chips in 2027 and the acceleration of the production of the second factory in the United States, capital expenditures in 2026 may reach close to US$50 billion. JPMorgan Chase also predicts that capital expenditures will rise significantly to US$48 billion in 2026. Goldman Sachs and UBS estimated it at US$44 billion.

In terms of production capacity planning, Morgan Stanley has revised upward its 2nm and A16 production capacity estimates from 2026 to 2027. JP Morgan predicts that the advanced process production capacity of N5, N3, and N2 will continue to be tight until 2026, and points out that TSMC may accelerate the expansion of N3 production capacity, including launching an equipment move-in plan for the second phase of the plant in Arizona, and may even convert part of the N5 production capacity of Fab 18 to N3 use.

Exchange rate trends are one of the key factors driving up profit forecasts. Goldman Sachs pointed out that during the second quarter conference, TSMC said that every 1% appreciation of the New Taiwan dollar against the US dollar would reduce the company's revenue by 1% and gross profit margin by 0.4%. Therefore, adjusting the Taiwan dollar to US dollar assumption from 29 to 30 is expected to further increase TSMC’s revenue and gross profit margin. UBS estimates that although overseas expansion will dilute gross profit margin by 2% to 3% per year in the initial stage, due to price increases, N3 gross profit improvement and product mix optimization, although the gross profit margin is expected to decline slightly to 56.8% in 2026, it is still higher than the historical average.