Morgan Stanley places top bet on Taiwan Semiconductor after AI boost
- Morgan Stanley has upgraded its rating on Taiwan Semiconductor Manufacturing, driven by strong AI spending from Meta and Microsoft.
- The price target set by Morgan Stanley for TSMC implies a potential 42% upside from its last trading price.
- Analyst Charlie Chan believes the recent concerns over AI demand and joint ventures have been resolved, making TSMC a solid investment choice.
On May 2, 2025, Taiwan Semiconductor Manufacturing Company (TSMC), a dominant player in the semiconductor industry located in Taiwan, was highlighted by Morgan Stanley as its top stock pick following strong artificial intelligence (AI) capital expenditures from major tech firms like Meta and Microsoft. This endorsement comes as a relief for stakeholders as the firm believes that the concerns surrounding AI demand sustainability have been eased by the robust spending guidance from these tech giants. Analyst Charlie Chan noted that TSMC has seen a decline of approximately 12% in shares this year, with its American Depositary Receipts (ADRs) trading under the ticker TSM on the New York Stock Exchange experiencing a nearly 13% drop in the same timeframe. However, Morgan Stanley is optimistic about TSMC’s future, projecting a remarkable potential upside of 42% from its closing price of NT$908.00 on April 30, 2025. Chan commented that TSMC has previously suffered from concerns about joint ventures that were ultimately deemed unnecessary and could conflict with its relationships with other customers. Chan identified three main factors that had constrained Morgan Stanley's recommendation in the past. Firstly, the uncertainty regarding AI demand played a significant role in limiting TSMC's stock appeal. However, Meta and Microsoft’s strong forecasts in AI spending have alleviated these concerns. Secondly, a joint venture between TSMC and Intel was dismissed, which Chan indicated could actually work to TSMC’s advantage, as it could help streamline operations without conflicting interests among clients. Lastly, there was apprehension regarding potential tariffs on semiconductors and semiconductor manufacturing equipment from the U.S., which are expected to be announced soon. Chan believes any cost increases would likely be absorbed by customers, and TSMC’s substantial investment of US$165 billion in the U.S. could enhance its chances of receiving an exemption from such tariffs. In conclusion, with these overhangs now resolved, Morgan Stanley's analysis has led to a renewed confidence in TSMC, making it their top recommended stock in light of favorable market conditions and strong performance indicators from essential players in the AI space.