Goldman Sachs reiterates Buy on TSMC, with AI demand visibility extending to 2030

Overview

This report is Goldman Sachs’ commentary on TSMC’s 2Q26 results and earnings call. The core view is that TSMC management sounded more optimistic on AI demand than in the previous quarter, while materially raising 2026 revenue growth and capital expenditure guidance, indicating that the company is accelerating capacity buildout to match long-term AI demand. Although 2Q26 gross margin was below Goldman Sachs and bullish investor expectations, the decline implied by 3Q26 gross margin guidance was milder than what N2 ramp pressure would suggest, leading Goldman Sachs to raise earnings forecasts and reiterate Buy.

Core views

Goldman Sachs believes TSMC’s long-term structural advantages remain intact: first, AI demand visibility extends into 2029-2030, with strong customer demand signals; second, the company is adding investment in Arizona while continuing advanced-node and advanced packaging capacity expansion in Taiwan; third, the N2 and A14 roadmaps reinforce its leadership in advanced-node technology; fourth, pricing strategy remains disciplined, and cost inflation may gradually be reflected through pricing, supporting structurally high profitability.

Analysis framework

The report analyzes the company through the lenses of earnings review, management guidance, AI demand and capacity expansion signals, gross margin and pricing assumptions, earnings forecast revisions, and valuation multiples, with the target price based on 2027E EPS and the target P/E multiple.

Methodology notes

• Valuation methodsTarget P/E valuation method

  22x 2027E EPS

  Goldman Sachs applies a target P/E of 22x to the revised 2027E EPS to derive a 12-month target price of NT$3,100 for 2330.TW; this multiple is referenced against one standard deviation above the 5-year forward P/E average and compared with the trading average during the previous revenue upcycle.

• Factor profileGS Factor Profile

  Growth、Financial Returns、Multiple、Integrated

  Goldman Sachs’ factor profile compares the stock with rated coverage stocks and industry peers across growth, financial returns, valuation multiple, and integrated factors to provide investment context.

• M&A scenarioM&A Rank

  M&A Rank 3

  TSMC’s M&A Rank is 3, representing a low probability of being acquired; the report notes that this rating is usually not incorporated into the target price.

Asset mapping & comparison

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

• TSMC 2330.TW

  Core covered asset in the report

  Strengths

  The world’s leading pure-play foundry, with leadership in advanced-node technology and CoWoS advanced packaging, over 60% of global foundry revenue share, and long-term growth driven by AI/HPC demand.

  Weaknesses

  2Q26 gross margin came in below Goldman Sachs and bullish investor expectations, while the N2 ramp and overseas fab costs pressure margins.

  Comparison

  Goldman Sachs believes TSMC is better positioned than peers to capture structural opportunities in AI, 5G, HPC, and EV, and that its advanced-node leadership is unlikely to be materially challenged over the next few years.

  Risks

  A worsening end-demand recovery, slower customer node migration, slower AI investment, yield or execution falling short of expectations, intensified competition, adverse FX, or higher-than-expected costs.

• TSM ADR

  TSMC ADR, representing the same fundamental exposure

  Strengths

  Target price was also raised to US$620, implying higher upside than the common stock and reflecting the ADR premium assumption.

  Weaknesses

  Affected by USD/TWD exchange rate and ADR premium assumptions.

  Comparison

  The ADR target price is derived from the common stock target price, USD/TWD 30.0, and a 20% ADR premium.

  Risks

  In addition to TSMC fundamental risks, it also includes risks from FX and changes in the ADR valuation premium.

• AI/HPC semiconductor supply chain

  TSMC’s growth driver and source of demand

  Strengths

  Customers are sending strong signals on AI demand for 2029-2030, with Agentic AI and CPU demand spanning x86, ARM, RISC-V, and TSMC’s customer base.

  Weaknesses

  If AI investment slows, long-term semiconductor content growth and advanced packaging demand may come in below expectations.

  Comparison

  Goldman Sachs views TSMC as a key AI enabler within its Taiwan semiconductor coverage.

  Risks

  A slowdown in the AI investment cycle, weakening customer demand signals, or a mismatch between advanced packaging or advanced-node capacity expansion and demand.

Key data

• Common stock ratingBuyThe rating has been BUY since May 7, 2019, and this report reiterates Buy.
• 2330.TW target priceNT$3,100Raised from NT$3,000; 12-month target price.
• 2330.TW current priceNT$2,470Price data on the report front page.
• 2330.TW upside25.5%-26%The front page lists 25.5%, while the main text states the new target price implies about 26% upside.
• TSM ADR target priceUS$620Raised from US$600, based on USD/TWD 30.0 and a 20% ADR premium.
• 2026 revenue growth guidanceslightly above 40% YoYPreviously above 30%, and above Goldman Sachs’ expectation of 39%.
• 2026 capital expenditure guidanceUS$60-64bnPreviously the high end of US$52-56bn; Goldman Sachs raised 2026E CapEx to US$64bn.
• Additional Arizona investmentUS$100bnAdding to the existing commitment of about US$165bn, for a total of about US$265bn.
• 2Q26 revenueUS$40.2bn+12% QoQ, +34% YoY, at the high end of company guidance.
• 2Q26 gross margin67.7%Above the upper end of company guidance of 65.5%-67.5%, but below Goldman Sachs’ 68.5% and bullish expectations of 68%-69%.
• 2Q26 EPSNT$27.25About 12% above Goldman Sachs’ expectation of NT$24.34.
• 3Q26 revenue guidanceUS$44.6-45.8bnAbout +12% QoQ at the midpoint, broadly in line with Goldman Sachs’ expectation.
• 3Q26 gross margin guidance65%-67%Although the N2 ramp is expected to dilute 2H26 gross margin by 300-400bps, the guided decline is milder.
• 2026-2028E gross margin forecast66.9% / 67.0% / 67.5%Previously 66.9% / 66.8% / 67.3%.
• 2026/2027/2028E EPS upward revision6.0% / 3.4% / 3.2%Reflecting 3Q26 gross margin guidance, 2026 revenue growth guidance, and improved AI demand.

Impact & implications

The report has positive implications for TSMC: stronger AI demand and higher capital expenditure reinforce long-term growth visibility, while advanced-node and advanced packaging expansion enhance the company’s ability to capture AI/HPC demand; although gross margin is under short-term pressure from the N2 ramp and overseas costs, pricing discipline, manufacturing efficiency, product mix, and scale effects are expected to support high profitability. For investors, the higher target prices for both the common stock and ADR reflect improved earnings forecasts and a repricing of the durability of the AI cycle.

Risks

• Further deterioration in the end-demand recovery, affecting capacity utilization.
• Customer node migration progressing more slowly than expected.
• A slowdown in AI investment leading to lower-than-expected long-term semiconductor content growth.
• Poor yield or execution causing profitability to fall short of expectations.
• Stronger competition eroding ASP or margins.
• Adverse FX trends or greater-than-expected cost increases pressuring gross margin.
• Cost inflation for overseas fabs and WFE equipment may create sustained pressure on capital expenditure and margins.

What to watch

• Whether 2026 revenue growth delivers on management’s guidance of slightly above 40% YoY.
• The execution pace of 2026 capital expenditure of US$60-64bn and total Arizona investment of about US$265bn.
• The actual degree of gross margin dilution from the N2 ramp in 2H26.
• Progress on A14 advancing as planned in 2028 and its lifecycle performance.
• How well CoWoS capacity expansion matches AI/HPC customer demand.
• Whether the assumed low- to mid-single-digit price increase in 2027 can be implemented.
• Whether AI demand visibility continues to extend into 2029-2030, especially for Agentic AI and CPU demand.