JPMorgan raised TSMC's target price to NT$3100, with AI demand and advanced-node capex expansion supporting upward earnings revisions

Overview

This report is JPMorgan's FY26 outlook and rating revision for TSMC ahead of the 2Q26 earnings release. Ahead of 2Q26 results, the firm raised FY26/27/28E EPS by 5%/10%/16% and increased the Jun-27 target price to NT$3100. The central thesis is that AI demand continues to outperform, advanced-node supply is tight, and improvements in N3 with high utilization are supporting gross margins, while TSMC is expanding N2, N3, and advanced packaging capacity more aggressively.

Core views

The report is constructive on TSMC's medium-term profitability and competitive position. In the near term, 2Q26 gross margin is expected to approach 70%; improved N3 profitability, higher UTR, spot premium for urgent orders, and 2027 pricing increases are expected to offset dilution from the N2 ramp and offshore fabs. Over the medium term, demand for N3 and N2 is seen to be driven by AI CPUs, accelerators, ASICs, and HPC migration, with supply-demand gaps potentially persisting into 2027 or 2028. On competition, the report believes TSMC remains solidly ahead in advanced nodes and advanced packaging technology, and expects first- and second-wave N2 product share to stay above 95%.

Analysis framework

The report supports its investment conclusion through EPS upgrades, capex and capacity planning, node-level supply-demand, advanced packaging capability, data center AI revenue split, pricing assumptions, and relative competitive analysis, and estimates the Jun-27 target price using an approximately 20x 12-month forward P/E multiple.

Methodology notes

• Valuation methods12-month Forward P/E

  Target price is based on around 20x 12-month forward earnings

  The Jun-27 target price of NT$3100 is based on approximately 20x 12-month forward P/E, reflecting stronger near-term earnings, improved AI demand visibility, capex expansion, and firmer pricing into 2028.

• Earnings ForecastEPS Uplift

  FY26/27/28E EPS raised by 5%/10%/16%

  The revisions are mainly driven by stronger gross margin, higher AI-related revenue, more stable pricing, and advanced-node capacity expansion.

• Industry Supply-DemandAdvanced-Node Capacity Gap Analysis

  N3/N2 supply tightness and AI-demand driven

  The report estimates the current N3 supply-demand gap at about 600k wafers and expects upward AI CPU demand not to fade by the end of 2027.

Asset mapping & comparison

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

• 2330.TW

  Core coverage name

  Strengths

  AI demand, N3/N2 leadership, advanced packaging with CoWoS/SoIC, gross margin near 70%, and 2027 price hikes alongside capex expansion.

  Weaknesses

  Offshore fabs and N2 ramp may dilute gross margin, and the stock has recently lagged the TWSE index.

  Comparison

  The report believes TSMC is ahead of Intel 14A and other competitors on advanced-node progress, with N2P expected to enter mass production earlier than Intel 14A.

  Risks

  Debate around the durability of the AI capex cycle, weakness in PC/Smartphone demand, and competitive/geopolitical noise.

• US.TSM

  Related ADR asset of the same company

  Strengths

  Benefits from the same TSMC fundamentals and AI semiconductor demand.

  Weaknesses

  ADR pricing is also affected by FX, liquidity, and cross-market valuation differences.

  Comparison

  Underlying operating fundamentals are consistent with 2330.TW, but the trading venue differs.

  Risks

  In addition to company-specific risk, valuation differences between Taiwan and U.S. market sentiment also apply.

Key data

• RatingOverweightThe firm maintained Overweight.
• Target PriceNT$3100.0Raised from NT$2500.0; target date is Jun-27.
• Current PriceNT$2460.0As of 2026-07-06.
• FY26/27/28E EPS Adjustment+5%/+10%/+16%The EPS uplift disclosed in the body of the report.
• 2Q26 Gross Margin Forecast69.5%Expected to be near 70%, up more than 3 percentage points from the prior quarter.
• FY 2026/27/28E Capex$58bn/$78bn/$84bnTotal of about $219bn over three years.
• Data Center AI Revenue CAGR69%2024-29E forecast, revised up from 59% previously.
• N3 Year-End Capacity Forecast167k/213k/240k wfpmFor end-2026, end-2027, and end-2028, respectively.
• N2 Capacity Forecast170k wfpm by end-2028; 240-250k wfpm by 2029-30The report sees the N2 ramp occurring faster than previous nodes.
• 2027 N3/N2 Pricing Assumptionaround 8-10%N5, N7 and CoWoS may also see moderate price increases.

Impact & implications

The report is constructive on TSMC's stock implications: EPS upgrades and a higher target price should continue to support the shares, although it notes that in the current semiconductor cycle TSMC may not significantly outperform the broader Asian semiconductor sector. At the industry level, ongoing supply tightness for AI accelerators, AI CPUs, ASICs, advanced nodes, and advanced packaging could persist, supporting higher foundry pricing power and a rising capex cycle.

Risks

• There is debate over how long AI capex growth will continue.
• Weaker PC and Smartphone demand in 2H26 could weigh on results or sentiment.
• N2 ramping and offshore fab expansion could dilute gross margins.
• Advanced-node competition and geopolitical factors may increase market noise.
• If capex expansion does not translate to revenue and profits quickly enough, it could weaken valuation support.

What to watch

• Management commentary on gross margin strength at the 2Q26 earnings call, especially guidance of 2Q GM at 69.5% and 3Q GM in the upper-60s.
• Whether 2026 revenue guidance is raised to mid-late 30% growth in USD terms, and whether 3Q26 is about 10% quarter-over-quarter growth.
• Whether management strongly addresses concerns around advanced-node and mature-node competition.
• Whether 2026 capex is raised slightly to around $58bn and whether it implies a clear step-up in 2027-28.
• Whether the total addressable market for data center AI is updated, particularly higher demand for AI CPUs, accelerators, networking, and ASICs.
• 2027 N3/N2 pricing negotiations and the degree of CoWoS supply tightness.