Bank of America names TSMC as top pick, sets new target price

TSMC (Taiwan Semiconductor Manufacturing Company) continues to expand its manufacturing presence in the United States, with its Arizona plant gradually increasing production capacity. This expansion is expected to support a sustained high level of capital expenditure for the company.

Bank of America (BofA) analysts, led by Haas Liu, have reiterated a 'buy' rating on TSMC, setting a target price of NT$3,100. The firm's positive outlook is based on TSMC's ongoing investments in advanced and specialized process technologies. In the second quarter, TSMC's Arizona plant reported a 17% increase in revenue quarter-over-quarter and a 145% increase year-over-year, contributing approximately 4% to the company's total revenue.

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TSMC's Arizona plant's second quarter revenue increased by 17% compared to the previous quarter and 145% year-on-year, reaching NT$45 billion, accounting for about 4% of TSMC's total revenue.

BofA projects that TSMC's depreciation expenses will grow at a compound annual growth rate of about 20% between 2026 and 2028. The company's board recently approved an additional US$29 billion (approximately NT$925.8 billion) for capital expenditure in the United States, nearly doubling the amount approved in the same period last year. BofA anticipates TSMC's capital expenditure for 2026 to reach the midpoint of the company's original forecast of US$62 billion (approximately NT$1.9 trillion).

Should investment growth continue at this pace, capital expenditure could further increase to US$80-85 billion (approximately NT$2.5-2.7 trillion) in 2027, exceeding Wall Street's current estimate of around US$75 billion (approximately NT$2.3 trillion). The combination of continued US investment and robust demand for AI-related products is expected to underpin TSMC's future growth prospects, although the rising capital expenditure may also lead to increased depreciation costs.

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TSMC's board of directors recently approved an additional approximately US$29 billion (about NT$925.8 billion) in US capital expenditure, almost double the amount approved in the same period last year.