Nomura maintains a Buy rating on TSMC and raises the target price to TWD 3,425

Overview

This report is Nomura's company research and earnings review on Taiwan Semiconductor Manufacturing Corp (2330.TW). The core conclusion is that TSMC remains a key beneficiary in the AI semiconductor cycle, and its upward trends in revenue, gross margin, and EPS can continue, therefore Nomura maintains a Buy rating and significantly raises the target price.

Core views

Nomura believes the surge in AI demand is changing TSMC's attitude toward capacity expansion, especially with a more aggressive build-out of CoW/CoWoS-related advanced packaging capacity. Although key components such as IC substrates in the WoS stage may limit turnkey output, full foundry utilization, an improved advanced-node mix, and 2027 price increases for N2/N3/N5 will together support margins. The report also notes that mature nodes may also be included in the scope of price increases in 2027F.

Analysis framework

The report analyzes supply-demand gaps, the pace of capacity construction, node migration, advanced packaging bottlenecks, capex plans, pricing assumptions, margin forecasts, and relative valuation, and compares TSMC's valuation with its historical P/E range, the SOX Index, and Bloomberg consensus expectations.

Methodology notes

• Valuation methodsP/E target price method

  25x 2027F EPS

  The target price of TWD 3,425 is based on 25x 2027F EPS of TWD137.0, with the target multiple near the high end of TSMC's historical 10-30x trading range.

• Earnings forecastUpward revisions to revenue, gross margin, and EPS

  2026-28F forecast revisions

  Nomura raised 2026-28F gross margin forecasts to reflect stronger pricing power and an improved AI/HPC production mix, and increased EPS forecasts for the same period by 4-12%.

• Industry supply and demandAI capacity bottleneck analysis

  CoW/CoWoS and WoS constraints

  The report believes TSMC's 2027F CoW target can reach about 2,000kpcs, but due to key component constraints at the WoS stage, the model includes only 1,800kpcs of CoWoS output.

Asset mapping & comparison

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

• 2330.TW / Taiwan Semiconductor Manufacturing Corp

  Covered company and locally listed stock

  Strengths

  Strong AI/HPC demand, leadership in advanced nodes, active CoW/CoWoS capacity expansion, pricing power, and a solid net cash position.

  Weaknesses

  Turnkey output in advanced packaging may still be constrained by key components such as IC substrates at the WoS stage.

  Comparison

  The report states that, based on Bloomberg consensus EPS, the local shares trade at about a 16% one-year forward P/E discount to the SOX, but Nomura believes TSMC should receive a premium due to its AI-enabled position.

  Risks

  US-China trade tensions, weaker-than-supply-chain-demand end sell-through, slower-than-expected technology migration, and stronger-than-expected competition at advanced 5/3nm nodes.

• TSM.US ADR

  ADR trading instrument of the same company

  Strengths

  Driven by the same fundamentals, reflecting global investors' pricing of TSMC's AI and advanced process growth.

  Weaknesses

  There may be differences in FX, market liquidity, and valuation between the ADR and local shares.

  Comparison

  The report's charts include a valuation comparison between TSMC and TSMC ADR.

  Risks

  In addition to company fundamental risks, FX and cross-market valuation gaps should also be monitored.

• SOX Index

  Semiconductor sector valuation benchmark

  Strengths

  Useful for measuring TSMC's valuation discount or premium versus the global semiconductor sector.

  Weaknesses

  The index has diverse constituents and cannot fully represent the structural differences of foundry and AI advanced packaging.

  Comparison

  The report states that after the SOX rebounded in April-May, TSMC's local shares still traded at about a 16% one-year forward P/E discount relative to the SOX.

  Risks

  If the overall semiconductor sector valuation pulls back, TSMC's valuation may also come under pressure.

Key data

• RatingBuyThe rating remains unchanged.
• Target priceTWD 3,425.00Raised from TWD 2,820.00.
• Current priceTWD 2,340.00Closing price on 2026-06-26.
• Implied upside+46.4%Based on the target price and current price.
• 2026F revenueTWD 5,313,126mnNew forecast, above the previous forecast of TWD 5,218,444mn.
• 2027F revenueTWD 6,922,023mnNew forecast, above the previous forecast of TWD 6,501,695mn.
• 2028F revenueTWD 8,543,664mnNew forecast, above the previous forecast of TWD 7,875,757mn.
• 2027F EPSTWD 136.96The target price valuation uses about TWD137.0.
• 2027F P/E17.1xThe report states the current valuation is about 17x 2027F EPS.
• 2026F/2027F USD revenue growth+37% / +30%From the report's main text forecast.
• 2026F/2027F/2028F gross margin67.5% / 68.1% / 67.7%Data from the financial forecast table.
• 2027F/2028F capex forecastUSD75bn / USD85bnRaised from USD70bn / USD70bn, respectively.

Impact & implications

If the report's assumptions materialize, TSMC will continue to be a core holding in the AI semiconductor supply chain, gaining above-industry earnings growth and valuation premium through advanced nodes, advanced packaging, and pricing power. The target price increase mainly comes from shifting the valuation base to 2027F EPS, margin improvement, and stronger growth visibility.

Risks

• Top-down macro risks from US-China trade tensions.
• Supply chain demand is strong but end sell-through may be weaker than expected.
• Technology migration may be slower than expected.
• Competition at advanced 5/3nm nodes may be stronger than expected.
• Constraints in key WoS-stage components such as IC substrates may limit CoWoS turnkey output.
• Rising capex may increase investment intensity and execution risk.

What to watch

• Whether 2Q26F results meet the high-end expectations of +12% QoQ revenue growth and 67.4% gross margin.
• Whether 3Q26F guidance supports another +12% QoQ revenue increase and about 68% gross margin.
• Whether 2027F price increases for N2/N3/N5 reach 5-10%, and whether mature nodes also enter the price-hike range.
• The pace of tool installation at AP7/AP8 and the ramp-up of CoW/CoWoS capacity.
• Whether supply of key WoS components, especially IC substrates, eases.
• Whether 2027-28F capex continues to exceed the current USD75bn/USD85bn forecasts.
• Changes in TSMC's valuation discount or premium relative to the SOX Index and TSM.US ADR.