CPU becomes TSMC’s new growth engine; target price raised to NT$3,300

Overview

The report raises TSMC’s earnings forecasts and target price. The core view is that agentic AI not only boosts GPU and ASIC demand but also significantly increases CPU computing demand. Customers including AMD, Intel, Apple, Amazon, Google, and Arm are collectively expanding TSMC’s CPU business, driving rapid N2 ramp-up and strengthening demand for nodes such as N3, N5, and N7. Bernstein believes the recent share price pullback offers a favorable entry opportunity.

Core views

The CPU business is undergoing a third wave of growth: initially driven by AMD, Apple, and Amazon, followed by Intel’s expansion of outsourcing, and now by broader and faster demand from agentic AI. The report expects TSMC’s CPU revenue to grow at a 50% to 60% CAGR from 2026 to 2027, with its wafer revenue contribution approaching XPU by 2027. The upward revision to capex is mainly directed toward wafer capacity rather than another large incremental expansion of CoWoS. TSMC will moderately allow growth in external advanced packaging capacity to avoid downstream bottlenecks constraining its front-end wafer business, while continuing to invest in technologies such as SoIC, CoPoS, and CPO.

Analysis framework

The report breaks down CPU demand across three dimensions: customers, products, and process nodes. It combines capacity ramps for N2 as well as N3, N5, and N7 to build revenue and capital expenditure forecasts; then updates the 2026–2028 revenue, margin, and EPS models, applies a 20x forward P/E for target price valuation, and compares valuation levels against SOX and Nasdaq.

Methodology notes

• Fundamental analysisRevenue driver breakdown

  Bottom-up CPU revenue estimation by customer, product, and process node

  Based on demand from customers such as AMD, Intel, Apple, Amazon, Google, and Arm, and combined with the N2, N3, N5, and N7 nodes used by CPUs and chiplets, the report projects TSMC’s CPU revenue and wafer demand.

• Financial forecastingThree-year earnings forecast model

  Linked forecasts for revenue, capex, margins, and EPS

  The model covers 2026 to 2028 and adopts relatively conservative stable assumptions for gross margin and operating margin amid rising overseas production costs.

• Absolute valuationForward P/E valuation method

  Target P/E multiplied by forward EPS

  The one-year target price of NT$3,300 is calculated using 5th-to-8th-quarter forward EPS of NT$164 and a 20x target P/E; the corresponding target price for TSM.US is US$554.

• Relative valuationComparable index valuation comparison

  Compare TSMC’s forward P/E with SOX and Nasdaq

  TSMC’s current forward P/E of about 18.8x represents discounts of about 14% and 25% to SOX and Nasdaq, respectively, supporting the case for valuation rerating.

Asset mapping & comparison

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

• 2330.TT / TSM.US

  The report’s core coverage target and a direct beneficiary of demand growth from agentic AI, CPUs, and advanced nodes.

  Strengths

  Leading advanced nodes, diversified customer base, earlier revenue contribution from N2, joint growth support from CPU and XPU demand, and a valuation discount to major technology indices.

  Weaknesses

  Capital intensity has increased significantly, overseas production costs may limit margin expansion, and CoWoS has a weaker long-term moat than front-end wafer manufacturing.

  Comparison

  Current forward P/E of about 18.8x, representing a roughly 14% discount to SOX and a roughly 25% discount to Nasdaq.

  Risks

  Broad market valuation multiple compression, Intel regaining and maintaining technology leadership, geopolitical uncertainty, and capex returns or advanced packaging margins falling short of expectations.

Key data

• One-year target priceNT$3,300Based on a 20x forward P/E; the corresponding target price for TSM.US is US$554.
• Closing priceNT$2,380As of August 10, 2026.
• Potential upside39%Summarized in the report body as close to 40%.
• 2026 U.S. dollar revenue forecastUS$173.0 billionExpected to grow 41% YoY.
• 2026 New Taiwan dollar revenue forecastNT$5.457 trillionExpected to grow about 43% YoY.
• 2026 EPS forecastNT$110.7Approximately NT$111, expected to grow 67% YoY.
• 2027 EPS forecastNT$144.8Above the consensus estimate listed in the report of NT$122.3.
• 2028 EPS forecastNT$188.7The report expects an EPS CAGR of about 31% from 2027 to 2028.
• CPU revenue forecastUS$15.0 billion to US$16.0 billion in 2025, rising to the high US$30 billions in 2027Expected to account for about 16% of TSMC’s total revenue in 2027, with wafer revenue contribution approaching XPU.
• N2 revenue contributionAbout 20% of wafer revenue in 2027Rapid ramp-up driven by AMD Venice, the MI450 series, and subsequent mobile and Intel products.
• Capital expenditure forecastUS$64.0 billion in 2026, US$75.0 billion in 2027, and US$82.0 billion in 2028Expected to grow 57% YoY in 2026, with incremental investment mainly used for wafer capacity.
• Current forward P/E18.8xDiscounts of about 14% and 25% to SOX and Nasdaq, respectively.

Impact & implications

The expansion of CPU demand extends TSMC’s AI beneficiaries from accelerators to general-purpose computing, and improves utilization and pricing support for advanced nodes and multi-node chiplet capacity. Large-scale capital expenditure is expected to support medium-term revenue growth, but also raises requirements for capacity absorption and investment returns. In advanced packaging, growth in external CoWoS-equivalent capacity may pressure industry margins and TSMC’s share, but it can ease downstream bottlenecks, allowing TSMC to focus more resources on front-end wafer manufacturing and next-generation packaging technologies with higher barriers to entry.

Risks

• Broad market valuation multiple compression could reduce the target P/E and share price upside.
• Intel regaining and sustaining process technology advantages could reduce outsourcing demand for TSMC and weaken its competitive position.
• Geopolitical uncertainty could affect production continuity, customer decisions, supply chain configuration, and valuation.
• If rapid capital expenditure growth fails to match actual demand, it could reduce capacity utilization and investment returns.
• Expansion of CoWoS-equivalent capacity by Amkor, ASE, Intel, Samsung, and others could pressure advanced packaging share and margins.
• Rising overseas capacity costs could limit improvements in gross margin and operating margin.

What to watch

• Whether agentic AI workloads can continue to drive the CPU market and TSMC’s CPU revenue to expand at the expected 50% to 60% growth rate.
• The pace of N2 ramp-up driven by AMD Venice, MI450, and products from Apple, Qualcomm, MediaTek, and Intel.
• N2’s actual share of wafer revenue in 2026 and 2027, as well as utilization changes for N3, N5, and N7.
• Capital expenditure execution from 2026 to 2028, the pace of wafer capacity expansion, and narrowing supply-demand gaps.
• Growth and market share changes in advanced packaging capacity at TSMC, ASE, Amkor, and Intel EMIB-T.
• Mass production progress for SoIC, CoPoS, and CPO, and their contribution to advanced packaging competitiveness.
• Delivery of 2026 revenue growth of 41%, EPS growth of 67%, and a 2027–2028 EPS CAGR of 31%.
• Whether TSMC’s valuation discount to SOX and Nasdaq narrows.