Taiwan Semiconductor's market share exceeds 90%! Its dominance in the AI era has become even stronger.

Wallstreetcn
2024.03.07 12:55
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JPMorgan Chase pointed out that thanks to tightly integrated packaging technology, leading process technology, and the most extensive customer ecosystem, Taiwan Semiconductor's moat in the field of Al semiconductors seems wider than in previous product cycles.


Author: Zhao Ying

Source: Hard AI

The demand for AI chips is skyrocketing. After NVIDIA's takeoff, will Taiwan Semiconductor be the next "king"?

Currently, the growth expectations for AI are strong, with the beneficiaries expanding further. In a report on Wednesday, J.P. Morgan pointed out:

This round of technological upswing will be driven by hardware demand in the AI ecosystem, from training chips to data centers and edge computing. The demand for AI chips continues to grow strongly, equivalent to about 4 million NVIDIA H100 shipments. With various ASIC projects from AMD, Intel, and cloud service providers, this number is expected to rise further, and the tight supply-demand situation is expected to continue for several quarters.

The J.P. Morgan report stated that, thanks to tightly integrated packaging technology, leading process technology, and the semiconductor industry's most extensive IP and design service ecosystem, Taiwan Semiconductor's moat in the AI semiconductor field seems wider than in previous product cycles. The market share is expected to exceed 90%, and the target stock price of Taiwan Semiconductor has been raised to NT$850.

Taiwan Semiconductor's position in the AI semiconductor field is increasingly solidified, with AI revenue expected to reach 25% by 2027.

With Intel outsourcing orders to Taiwan Semiconductor and Taiwan Semiconductor's leading position in the N3 process, strong growth is expected in 2025-2026.

It is expected that Taiwan Semiconductor's gross margin will begin to expand from 2025, reaching 55-60% by 2026, driving earnings per share to NT$55-60.

Growth in AI-related Revenue

As a key driver of AI semiconductors, Taiwan Semiconductor's AI processing capabilities in data centers and edge computing are strengthening. The J.P. Morgan report predicts that by 2027, AI-related revenue for Taiwan Semiconductor will account for 25% of the total revenue, with 19% from data center AI and the rest from edge AI.

  • Growth in AI processor demand: With the increasing demand for AI processing in data centers and edge computing, Taiwan Semiconductor, as a major manufacturer of AI processors, is expected to achieve significant growth in the next 3-4 years, maintaining over 90% market share in the AI semiconductor field.

  • Data center AI revenue: With the shift from general computing to accelerated computing, as well as the continuous growth in AI training demand and the expansion of AI inference use cases, data center AI will become a key driver of the semiconductor industry in the coming years.


Taiwan Semiconductor's market share in AI accelerators for data centers is expected to increase from about 6% in 2023 to 19% in 2027.

  • Edge AI revenue: With the improvement of AI infrastructure and the popularization of AI use cases, edge AI is also expected to grow. It is projected that edge AI's contribution to Taiwan Semiconductor's revenue will increase from almost zero in 2023 to 6% in 2027.

Morgan Stanley also pointed out that they have seen signs of Intel outsourcing to Taiwan Semiconductor in the N3 era from the supply chain:

  • Intel may outsource part of its upcoming Arrow Lake processor's CPU to Taiwan Semiconductor, which will drive strong growth for Taiwan Semiconductor in 2025-2026.
  • If Intel's outsourcing ratio reaches 50%, Taiwan Semiconductor's revenue from Intel in 2025 may reach 8-9 billion US dollars, making Intel the second largest customer of Taiwan Semiconductor's N3 process.

In 2024 and 2025, Taiwan Semiconductor's N3 process is expected to bring strong order growth. The report indicates:

  • With the migration of AI accelerators to N3, the revenue scale of the N3 process node will be 48% higher than the peak of N5. By 2025, Taiwan Semiconductor's N3 capacity is expected to reach about 15,000 wafers per month, driving revenue to reach 31.7 billion US dollars in 2026.

Morgan Stanley analysts have slightly raised their expectations for the 2025 fiscal year. It is expected that starting from 2025, the gross profit margin will begin to expand, reaching a level of 55-60% by 2026, driving earnings per share (EPS) to reach 55-60 New Taiwan dollars in 2026. Furthermore, J.P. Morgan pointed out that as the initial customer engagement significantly increases, Taiwan Semiconductor may continue to maintain its leading position in the N2 technology era. This suggests that Taiwan Semiconductor's leadership in the AI semiconductor market will further solidify in the future.