Morgan Stanley Raises AllRing Target Price, Bullish on TSMC CoWoS Capacity Expansion

Overview

This report provides a preview of the Taiwan Computex exhibition, focusing on the impact of NVIDIA's upcoming Vera CPU and Rubin GPU releases on the semiconductor supply chain. Based on strong AI GPU and CPU demand, Morgan Stanley significantly raised its 2027 TSMC CoWoS capacity forecast and correspondingly increased the target price for key equipment supplier AllRing. The report notes that while SolC capacity construction is slightly delayed, the overall advanced packaging trend remains strong, benefiting TSMC, UMC, and related supply chain companies.

Core views

The core views revolve around the NVIDIA new product launch and TSMC capacity expansion. First, regarding the NVIDIA Rubin series server rack design scheduled for presentation at Computex, the firm focuses on its ability to achieve lowest cost per token through combinations like NVL, LPU, and Vera CPU. For the highly anticipated NVIDIA CPU business, supply chain checks indicate that TSMC is allocating additional CoWoS-R capacity and 3nm wafers for Vera CPU, with expected standalone CPU shipments reaching 1.5 million units, serving end customers including Microsoft and Meta. Secondly, in terms of capacity, due to extremely strong AI GPU and CPU demand, TSMC decided to further expand CoWoS capacity in AP7 area, even sacrificing some less urgent SolC capacity expansion. The firm raised its TSMC 2027 CoWoS capacity expectation from 160,000-170,000 wafers/month to 200,000 wafers/month. This adjustment mainly stems from TSMC converting Fab15A's 28/22nm space into 55nm interposer production, adding approximately 10,000 wafers/month in capacity. The resulting 28/22nm ISP order spillover effect will benefit UMC, hence maintaining an Overweight rating on UMC. Regarding AllRing, as a key equipment supplier for CoWoS and SolC, its 2027 CoWoS-related revenue is expected to grow 62% year-over-year. Although SolC equipment introduction may be slightly delayed due to TSMC prioritizing CoWoS expansion, strong CoWoS construction is sufficient to offset this impact. Additionally, AllRing has entered NVIDIA CPO supply chain and acts as the sole Wafer-on-Wafer dispensing equipment supplier in SolC, with clear long-term growth logic. Based on this, the firm raised AllRing 2026-2028 EPS forecasts and increased the target price from NT$1,280 to NT$1,580.

Analysis framework

The firm adopts a combined top-down and bottom-up analysis approach. First, verifying TSMC capacity allocation changes and NVIDIA new product technical details (such as TDP, packaging structure) through supply chain checks. Second, applying bottom-up revenue breakdown models to calculate detailed equipment revenue ratios and growth rates for AllRing across CoWoS, CPO, SolC and other technology nodes. Finally, combining RIM for valuation to recalculate target prices based on revised earnings forecasts and key assumptions (such as cost of equity, growth rate), and assessing risk-return through bull/bear scenario analysis.

Methodology notes

• Valuation MethodRIM Residual Income Model

  RIM Residual Income Model

  A valuation method based on book value and present value of future excess returns. The research report uses this model to calculate AllRing's intrinsic value. Key inputs include cost of equity (8%), mid-term growth rate (16%), and terminal growth rate (4.5%).

• Industry Analysis FrameworkSupply and Demand Framework

  Supply and Demand Framework

  Analyzes industry prosperity and bottleneck links by matching surging AI chip demand with TSMC advanced packaging capacity supply. The report points out demand exceeds supply, leading to adjusted capacity expansion priorities.

• Industry Analysis FrameworkUpstream-Midstream-Downstream Supply Chain Transmission

  Upstream-Midstream-Downstream Supply Chain Transmission

  Analyzes how upstream wafer foundry (TSMC) capacity strategy changes transmit to midstream equipment suppliers (AllRing) and alternative process manufacturers (UMC). For example, TSMC squeezing mature process space leads to orders spilling over to UMC.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• AllRing Tech Co. (6187.TWO)

  Beneficiary Target, as key equipment supplier for TSMC CoWoS and SolC, directly benefits from capacity expansion

  Strengths

  High proportion of CoWoS equipment revenue (expected 75% in 2026), sole Wafer-on-Wafer dispensing equipment supplier in SolC, entered NVIDIA CPO supply chain

  Weaknesses

  SolC equipment introduction may be delayed due to TSMC priority adjustments

  Comparison

  Compared to other equipment suppliers, it possesses monopolistic or high share advantages in specific advanced packaging links

  Risks

  CoWoS capacity expansion slows, SolC technology migration speed slower than expected, loss of market share

• TSMC (TSM)

  Core Beneficiary Target, main provider of AI chip代工 and advanced packaging

  Strengths

  World-leading CoWoS capacity, high technical barriers, customers cover major players like NVIDIA, AMD etc.

  Weaknesses

  Huge capital expenditure, SolC capacity construction slightly delayed

  Comparison

  Absolutely dominant position in advanced packaging field, no comparable competitors at similar scale

  Risks

  Geopolitical risks, technology iteration below expectations

• UMC

  Indirect Beneficiary Target, absorbing TSMC mature process order overflow

  Strengths

  Expected to receive Sony 28/22nm ISP order overflow, capacity utilization increases

  Weaknesses

  Technology nodes relatively mature, gross margin elasticity smaller than advanced processes

  Comparison

  As an alternative choice for TSMC mature process, competitive in specific niche fields

  Risks

  Intensified competition in mature processes, price pressure

Key data

• TSMC 2027 CoWoS Capacity Forecast200,000 wafers/monthRaised from previous 160,000-170,000 wafers/month, reflecting strong demand
• AllRing Target PriceNT$1,580Raised from previous NT$1,280
• NVIDIA Vera CPU Potential Market Size$20 billionExpected standalone CPU shipments around 1.5 million units
• AllRing 2027 CoWoS Revenue Growth Rate62%Year-over-year growth, benefiting from TSMC capacity expansion
• TSMC 2027/2028 SolC Capacity Assumption40,000/70,000 wafers/monthFine-tuned downward from previous 45,000/78,000 wafers/month

Impact & implications

For TSMC, aggressive CoWoS capacity expansion confirms the sustainability of AI demand, but capital expenditure efficiency and impact of SolC progress delay need monitoring. For UMC, the transfer of TSMC mature process capacity provides a clear incremental order logic supporting short-term performance. For equipment suppliers like AllRing, although SolC short-term pace slows, strong CoWoS and CPO growth ensures high-visibility revenue for the next two years, and expansion outside TSMC camp (such as Intel EMIB, FoPLP) is expected to open new market spaces. Overall, NVIDIA supply chain especially in advanced packaging segments still holds allocation value.

Risks

• TSMC CoWoS capacity expansion slower than expected
• SolC and Silicon Photonics technology migration adoption slower than expected
• AllRing market share in CoWoS process declines due to intensified competition
• Uncertainty regarding NVIDIA Rubin GPU Thermal Design Power (TDP) compliance

What to watch

• NVIDIA Rubin/Vera rack design, thermal/packaging updates at Computex exhibition
• Actual implementation situation of TSMC 2027 CoWoS capacity
• Clarity of AllRing revenue contribution in CPO and SolC fields (expected H2 2026)
• Actual progress of UMC absorbing Sony ISP orders