JPMorgan Stays Bullish on TSMC Amid Earthquake Disruptions with AI and US Expansion Boost

Despite the January 2025 earthquake impacting Taiwan Semiconductor Manufacturing Company's (TSMC) production, JPMorgan maintains a bullish outlook on the company. The firm reaffirmed its "overweight" rating, pointing out that TSMC is poised to benefit significantly from growing demand in AI and high-performance computing (HPC), further cementing its status as a key player in the semiconductor industry.

JPMorgan highlights TSMC's strong position in AI accelerators and edge AI markets, supported by its robust process roadmap (N3 and N2) and industry-leading packaging technology. Additionally, potential increased outsourcing from Intel is expected to bolster TSMC's market position further.

TSMC's advanced CoWoS and SoIC technologies are critical for future growth. The CoWoS capacity is projected to continue expanding to meet AI and new non-AI applications' needs, while SoIC capacity is expected to reach significant milestones by the end of 2026 and 2027.

Furthermore, TSMC's expansion plans in the United States, coupled with potential additional business from Intel, strengthen its positive outlook. Investors anticipate that TSMC may soon announce more aggressive U.S. expansion plans, addressing potential tariff concerns and solidifying its advanced manufacturing localization strategy.

Though the earthquake has prompted TSMC to revise its 2025 first-quarter revenue expectations to the lower end of its guidance (between $250 billion and $258 billion), the financial impact remains limited. The expected revenue impact due to wafer scrap from N3 and N5 nodes is around $10 billion, or 4% of expected quarterly revenue.

Despite the quake's disruptions, TSMC keeps its Q1 2025 gross margin guidance (57-59%) and operating profit margin (46.5-48.5%) unchanged, estimating related losses at NT$53 billion after insurance claims, about 1% of expected operating profit.

Overall, JPMorgan believes TSMC will continue to thrive on the long-term demand for AI, HPC, and edge computing, supported by its advanced process and packaging technology leadership. Temporary disruptions aside, its capacity expansion, diversified customer base (including Nvidia, Apple, AWS), and pricing power are expected to sustain its revenue and profit margin growth.

The company's robust financial performance remains evident even amidst production challenges, further reinforced by its U.S. expansion plans and potential increased outsourcing work from Intel, underpinning an optimistic future outlook.