Preview of TSMC's 2Q26 analyst meeting: raising full-year guidance is the core catalyst

Overview

This report is Morgan Stanley's preview of TSMC's 2Q26 analyst meeting in terms of earnings and catalysts. Core focus areas include 3Q26 revenue guidance, gross margin, the 2026 full-year revenue growth target, capital expenditure, and the sustainability of AI semiconductor demand. The report believes TSMC may raise full-year guidance due to strong demand for 3nm and 2nm products and continued AI-related demand.

Core views

Morgan Stanley's core view is that investors should accumulate TSMC shares, as the company has an opportunity to raise its 2026 revenue growth target to the high 30% range or close to 40%, and increase capital expenditure to around US$56bn. The base case has a 60% probability, corresponding to 3Q26 revenue growth of 10%-15% Q/Q, gross margin of about 67%-68%, and a five-year AI semiconductor revenue CAGR raised to 70%.

Analysis framework

The report uses an event catalyst and scenario analysis framework, setting out three possible outcomes around the July 16 2Q26 analyst meeting and estimating the short-term impact of each on TSMC's share price. It also incorporates ModelWare earnings forecasts, target price history, a residual income valuation model, and key operating indicators in its assessment.

Methodology notes

• Valuation methodResidual income model

  Estimate the target price using cost of equity, medium-term growth rate, and terminal growth rate.

  The report discloses that the base-case valuation uses a residual income model, with key assumptions including a 9.2% cost of equity, a 10.5% medium-term growth rate, and a 4.0% terminal growth rate.

• Event analysisScenario analysis

  Construct upside, base, and downside scenarios around possible guidance on revenue, gross margin, capital expenditure, and AI demand that may be disclosed at the analyst meeting.

  The report assigns a 60% probability to the base case and provides ranges for possible share price gains or declines under different scenarios.

Asset mapping & comparison

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

• TSMC 2330.TW

  Core covered asset in the report

  Strengths

  Its advanced foundry leadership continues, with strong demand for 3nm and 2nm supporting 2026 revenue growth and higher capital expenditure through AI semiconductor demand.

  Weaknesses

  Higher costs, depreciation, and overseas fab costs may offset the margin improvement brought by better utilization.

  Comparison

  Under Morgan Stanley's rating system, TSMC is rated Overweight, with expected total return over the next 12-18 months above the average of its industry coverage universe.

  Risks

  If inventory correction occurs, advanced-process demand weakens, or overseas fab costs rise sharply, earnings and valuation may come under pressure.

• TSM.US

  Related TSMC ADR asset

  Strengths

  Highly correlated with TSMC's fundamentals and AI semiconductor demand trends.

  Weaknesses

  ADR performance may also be affected by exchange rates, overseas market risk appetite, and liquidity factors.

  Comparison

  The report primarily uses 2330.TW as the main object for valuation and target price.

  Risks

  Returns may be affected by changes in the Taiwan-listed share price, exchange rates, and ADR premium/discount in overseas markets.

Key data

• RatingOverweightA positive rating under Morgan Stanley's relative rating system.
• Industry viewAttractiveThe report's view on the Greater China technology semiconductor coverage universe is Attractive.
• Target priceNT$2,888.00In the target price history, it was updated to 2888 on 6/29/26.
• Current share priceNT$2,440.00Closing price as of 2026-07-13.
• Target price upside18%The report table discloses the up/downside to the price target.
• Base-case probability60%Exhibit 1 identifies Scenario 2 as the base case, with a probability of 60%.
• Base-case 3Q26 revenue guidance10%-15% Q/Q in USDThe report expects 3Q26 USD revenue to grow 10%-15% quarter over quarter.
• Base-case 3Q26 gross marginabout 67%-68%The report expects gross margin to be roughly flat quarter over quarter.
• 2026 capital expenditureUS$56bnUnder the base case, full-year capital expenditure is updated to US$56bn.
• Five-year AI semiconductor revenue CAGR70%Under the base case, it is raised from the current mid-to-high 50% range to 70%.

Impact & implications

If management confirms stronger full-year revenue growth, capital expenditure, and AI demand outlook, the market may revise up its next-12-month EPS expectations and drive a positive short-term return in TSMC's share price. Under the base case, the report expects the stock to rise 1%-3%; if guidance is stronger, potential upside is 3%-5%; if guidance is weaker and AI demand is affected by memory costs, the stock could fall 3%-5%.

Risks

• An inventory correction in 2026.
• Weaker demand for advanced process technologies.
• Significantly higher overseas fab costs.
• Higher costs and depreciation offsetting utilization improvement.
• AI demand remains strong, but could be affected by rising memory costs.
• Morgan Stanley has business relationships with the companies it covers, and investors should treat this research as only one factor in making investment decisions.

What to watch

• Whether 3Q26 revenue guidance at the July 16 2Q26 analyst meeting reaches 10%-15% or higher.
• Whether the 2026 full-year revenue growth target is raised to the high 30% range or close to 40%.
• Whether 3Q26 gross margin guidance remains at about 67%-68% or moves closer to 70%.
• Whether 2026 full-year capital expenditure is raised from the US$52-56bn range to US$56bn or US$60bn.
• Management's comments on the sustainability of AI demand, the supply-demand gap through 2028, and long-term AI semiconductor revenue CAGR.
• Whether market consensus EPS for the next 12 months is revised upward because of the meeting guidance.