TSMC: AI and Advanced Nodes to Drive Growth in 2025

TSMC, the world's leading semiconductor foundry, is expected to see significant growth in 2025, driven by the increasing demand for AI chips and the company's aggressive expansion into advanced nodes. Goldman Sachs analyst Bruce Lu recently maintained a Buy rating on TSMC with a price target of $254, up from $248, highlighting the company's strong prospects.

AI Chip Demand Surges
The AI chip market is surging, with a compound annual growth rate (CAGR) of 50 percent, according to TSMC's CEO, CC Wei. This strong demand is expected to continue in 2024 and 2025, driving TSMC's revenue growth. Lu expects another year of solid revenue growth in 2025E by 26.8 percent, following 29.4 percent growth in 2024E, driven by strong demand in leading-edge nodes mainly supported by continuous strong momentum from AI.



Advanced Nodes Expansion
TSMC is aggressively expanding into advanced nodes, such as 2nm and 3nm, to maintain its competitive edge. The company's 3nm (N3) process technology offers exceptional optimization in power efficiency, performance, and transistor density, making it a prime choice for mobile smartphones and High-Performance Computing (HPC) applications. TSMC's 2nm (N2) process, expected to enter high-volume manufacturing in the second half of 2026, will use gate-all-around (GAA) nanosheet transistors, significantly enhancing its performance, power, and area (PPA) characteristics.

TSMC's aggressive expansion into advanced nodes is expected to increase its capital expenditure (capex) in 2025 to around $40 billion, following a lower spend of around $30 billion in 2024. However, its capital intensity will remain at the mid-30%s level, aligning with the company's guidance. This increased capex is justified by the potential returns from these advanced nodes, as TSMC's revenue growth is expected to be solid.

Geopolitical Landscape and Market Risks
While TSMC's focus on AI and HPC segments presents potential market risks, such as overreliance on a few key customers and market fluctuations, the company can mitigate these risks by diversifying its customer base and exploring new market segments. TSMC's expansion into Japan and Europe, as well as its U.S. expansion plans, will help the company maintain its competitive edge in the global market.



In conclusion, TSMC's aggressive expansion into advanced nodes, such as 2nm and 3nm, and its focus on the growing AI chip market are expected to drive significant growth in 2025. While there are potential market risks, TSMC's strategy of diversifying its customer base and expanding its global footprint will help the company maintain its competitive edge in the foundry industry. Investors should consider TSMC as a strong buy, given its robust fundamentals and undemanding valuation relative to its sector peers.