TSMC: Early Signs Of Formidable Foundry Competition (Archive)
Exceptional AI-driven growth, but rising competition and 2nm expansion pressure margins.
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Elevator Pitch
- TSM's growth is powered majorly by the high-performance computing segment, which is growing very well as demand for silicon chips rises in tandem with demand for AI compute.
- I expect ~32% YoY revenue growth in FY2026, above management's guidance, due to their excellent track record in outperforming expectations.
- Gross margins face temporary but meaningful pressure from the 2nm ramp and overseas fabs, with a potential peak headwind of up to about 700 basis points.
- Large customers like Apple are exploring Intel and Samsung. And Elon Musk's Terafab is also working with Intel’s foundry. This raises longer-term competitive risks for TSMC's foundry market share.
- TSM trades at a sizable 1-yr fwd PE discount to foundry and semiconductor peers, near trough relative levels despite its superior growth and profitability profile.
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