Morgan Stanley Upgrades AllRing Target Price, Bullish on TSMC’s Significant CoWoS Capacity Expansion

Overview

This report is Morgan Stanley’s forward-looking analysis ahead of Computex Taipei 2026, focusing on NVIDIA’s upcoming Rubin GPU and Vera CPU and their implications for the semiconductor supply chain. The core thesis is that robust AI GPU and CPU demand is driving TSMC to significantly expand its CoWoS advanced packaging capacity—benefiting key equipment suppliers such as AllRing and foundry partners. The report raises TSMC’s 2027 CoWoS capacity forecast and, accordingly, upgrades AllRing’s target price while maintaining Overweight ratings on key NVIDIA supply chain players—including UMC.

Core views

NVIDIA’s New Products Drive Technological Evolution: The centerpiece of Computex will be NVIDIA’s Rubin-series server rack architecture—including integrated GPU, CPU, and networking components—as well as thermal management and packaging innovations. The report notes that NVIDIA’s Vera CPU presents a ~$20 billion market opportunity. Supply chain checks indicate TSMC is allocating additional CoWoS-R capacity and 3nm wafers for Vera CPU production, with an estimated standalone CPU shipment volume of 1.5 million units, primarily targeting Microsoft, Meta, CoreWeave, and Oracle. Regarding the Rubin GPU, although concerns persist around its 2.3kW thermal design power (TDP) and the yield challenges of Rubin Ultra packaging, the report contends that system-level thermal collaboration can achieve performance targets—and that Rubin Ultra will retain a dual-die-per-package configuration to safeguard yield. Significant CoWoS Capacity Expansion at TSMC: Driven by surging AI chip demand, TSMC has decided to further expand CoWoS capacity at its AP7 fab—even at the expense of delaying less time-critical SolC capacity expansion. The report raises TSMC’s 2027 CoWoS capacity forecast from 160,000–170,000 wafers/month to 200,000 wafers/month. This expansion is achieved largely by repurposing 28nm/22nm space in Fab 15A for 55nm interposer production. Meanwhile, SolC capacity ramp may be delayed by three quarters, with 2027/2028 capacity assumptions revised downward to 40,000/70,000 wafers/month, respectively. AllRing Benefits Significantly; Target Price Upgraded: As a key equipment supplier to both TSMC and OSATs ASE/SPIL, AllRing stands to benefit substantially from CoWoS capacity expansion. The report projects a 62% year-on-year increase in AllRing’s CoWoS-related revenue in 2027. Moreover, AllRing has entered NVIDIA’s CPO supply chain and is positioned to become the sole wafer-on-wafer (WoW) dispensing equipment supplier for SolC. Based on strong capacity build-out expectations—especially in 2027—the report upgrades AllRing’s target price from NT$1,280 to NT$1,580 and raises EPS forecasts for 2026–2028. UMC Captures Spillover Orders: With TSMC reallocating mature-node capacity toward advanced packaging interposer production, UMC is expected to absorb spillover Sony 28nm/22nm image signal processor (ISP) orders in 2027—supporting Morgan Stanley’s continued Overweight rating on UMC.

Analysis framework

The report employs a hybrid top-down and bottom-up analytical framework. First, it identifies technological evolution drivers—such as the Rubin/Vera architectures, CPO, and SolC—by tracking major industry events (e.g., Computex) and leading companies’ product roadmaps (e.g., NVIDIA). Second, it validates and refines quantitative forecasts—particularly for critical bottlenecks like CoWoS capacity—through supply chain checks (e.g., confirming TSMC’s Fab 15A reconfiguration and expanded CoWoS-R allocation). Finally, it conducts bottom-up financial modeling—decomposing AllRing’s revenue streams (CoWoS, CPO, SolC) based on updated capacity data, market penetration, and share assumptions—to derive revised earnings forecasts and valuation conclusions.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply-Demand Framework

  The report assesses the necessity and pace of capacity expansion by analyzing the gap between explosive AI chip demand and TSMC’s advanced packaging supply—a classic application of supply-demand analysis.

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Industry Chain Transmission

  Upstream-Midstream-Downstream Industry Chain Transmission

  The report traces the logical flow—from upstream design firms (e.g., NVIDIA) to midstream foundries and packaging providers (e.g., TSMC), then downstream equipment suppliers (e.g., AllRing) and mature-node foundries (e.g., UMC).

• Valuation MethodologyRIM (Residual Income Model)

  RIM (Residual Income Model)

  The report explicitly applies the Residual Income Model to value AllRing—calculating target price based on forecasts of future return on equity and cost of equity.

• Company Fundamentals & Financial FrameworkFree cash flow analysis

  Bottom-Up Revenue Breakdown

  The report performs granular, line-item revenue forecasting for AllRing (e.g., CoWoS, CPO, SolC segments), incorporating market penetration rates and share assumptions to construct a more precise financial model.

Asset mapping & comparison

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

• AllRing (6187.TWO)

  Beneficiary

  Strengths

  Primary equipment beneficiary of TSMC’s CoWoS capacity expansion; secured position in NVIDIA’s CPO supply chain; sole WoW dispensing equipment supplier for SolC.

  Weaknesses

  Slight delay in SolC capacity ramp may impact near-term equipment pull-in timing.

  Comparison

  Holds exclusive or high-share positions in specific advanced packaging processes (e.g., dispensing, coupling), differentiating it from peers.

  Risks

  Slower-than-expected CoWoS expansion; slower-than-anticipated technology migration into SolC and silicon photonics.

• TSMC (2330.TW)

  Beneficiary

  Strengths

  Possesses world-leading CoWoS capacity and technology; direct beneficiary of NVIDIA Vera/Rubin volume ramp.

  Weaknesses

  Massive capex requirements; must balance capacity allocation across technology nodes.

  Comparison

  Maintains absolute dominance in advanced packaging.

  Risks

  Geopolitical risks; slower-than-expected technology iteration.

• UMC (2303.TW)

  Beneficiary

  Strengths

  Expected to absorb spillover orders (e.g., Sony ISP) resulting from TSMC’s mature-node capacity reallocation.

  Weaknesses

  Reliance on relatively mature process nodes exposes it to margin pressure.

  Comparison

  Holds cost and customer advantages in the mature-node segment.

  Risks

  Intensifying competition in mature-node markets.

Key data

• TSMC’s 2027 CoWoS Capacity Forecast200,000 wafers/monthRaised from prior expectation of 160,000–170,000 wafers/month
• AllRing Target PriceNT$1,580Raised from NT$1,280
• NVIDIA Vera CPU Potential Market Size$20 billionAnalyst estimate cited in the report
• Vera CPU Estimated Shipment Volume1.5 million unitsBased on reasonable capacity assumptions
• TSMC’s 2027/2028 SolC Capacity Forecast40,000 / 70,000 wafers/monthRevised downward from prior 45,000 / 78,000 wafers/month
• AllRing’s 2027 CoWoS Revenue Growth Rate62%Year-on-year projected growth

Impact & implications

The report concludes that TSMC’s aggressive CoWoS capacity expansion confirms the durability of AI hardware demand—creating tailwinds across NVIDIA’s entire supply chain (including KYEC, ASE, Hon Precision, Winway, etc.). For AllRing, benefits extend beyond near-term CoWoS equipment deliveries to include new growth engines in CPO and SolC over the medium-to-long term. For UMC, structural shortages in mature nodes—arising from TSMC’s capacity reallocation—present distinct investment opportunities despite the spotlight on advanced packaging. Overall, the report reinforces an optimistic view of Asia-Pacific semiconductor supply chain participants with proven technological moats and reliable capacity execution capabilities.

Risks

• TSMC’s CoWoS capacity expansion proceeds slower than anticipated
• AllRing’s market share in WoW processes declines due to intensifying competition
• Adoption of SolC and silicon photonics technologies lags expectations

What to watch

• Actual progress of TSMC’s CoWoS capacity expansion
• Migration and adoption trends for SolC and silicon photonics technologies
• AllRing’s market expansion outside the TSMC ecosystem (e.g., Intel EMIB, FoPLP)