TSMC's Pricing Power and Margin Resilience: A Catalyst for Long-Term Growth in the AI Era

The semiconductor industry is undergoing a transformative phase, driven by the insatiable demand for artificial intelligence (AI) and high-performance computing (HPC) chips. At the forefront of this revolution is Taiwan Semiconductor Manufacturing Company (TSMC), whose recent performance and strategic positioning have drawn renewed investor interest. Bank of America's (BofA) upgraded price target for TSMC-from NT$1,200 to NT$1,400-reflects confidence in the company's ability to sustain pricing power and margin resilience amid a rapidly evolving market, according to an Investing.com report. This analysis explores how TSMC's technological leadership, coupled with favorable industry dynamics, positions it as a cornerstone of long-term growth in the AI-driven era.

Semiconductor Industry Dynamics: Fueling TSMC's Momentum

The global semiconductor industry is projected to reach $705 billion in revenue in 2025, a 12% increase from 2024, driven by surging demand for AI and HPC chips, according to a TS2 report. The report also notes that data-center AI chip sales hit $112 billion in 2024 and are expected to grow further in 2025, as enterprises invest in advanced processing capabilities to manage AI workloads. TSMC is uniquely positioned to capitalize on this trend, with its 3nm and 5nm nodes dominating the foundry market and its 2nm node (N2) entering pilot production. That report states the N2 node, which will transition to gate-all-around (GAA) nanosheet transistors, promises a 30% improvement in power efficiency and performance over FinFET technology, reinforcing TSMC's leadership in Moore's Law scaling.

Advanced packaging technologies, such as chip-on-wafer-on-substrate (CoWoS), are another critical growth driver. TSMC plans to double CoWoS production capacity in 2025, enabling it to meet rising demand for heterogeneous integration in AI accelerators and HPC applications, according to an IndieKings piece. This expansion not only strengthens TSMC's value proposition but also creates a moat against competitors like Samsung and Intel, which are still refining their own packaging solutions.

Pricing Power and Margin Resilience: A Strategic Edge

TSMC's ability to maintain pricing power is underscored by its planned price hikes for advanced nodes starting in 2026. Nodes below 5nm will see increases of 5–10%, while the transition to 2nm will incur a 50% price jump to offset the high costs of GAA technology adoption and U.S. manufacturing expansion, per a Nikhs note. These hikes are expected to generate an additional $9 billion in revenue, supporting TSMC's target of sustaining a gross margin above 53% despite foreign exchange headwinds, according to BofA.

The company's Q2 2025 results already highlight its margin resilience: a 58.6% gross margin and 60.7% year-over-year profit growth, as noted in Nikhs' analysis. This performance is a testament to TSMC's operational efficiency and its ability to pass on costs to customers, particularly in high-margin AI and HPC segments. BofA notes that TSMC's valuation at 17 times 2025 earnings is attractive given its growth trajectory, with 2025 revenue projected to rise 30% in USD terms.

Competitive Landscape: TSMC's Dominance Amid Rivals' Struggles

TSMC's market share in the foundry industry reached 67.6% in Q1 2025, far outpacing Samsung (7.7%) and Intel (which did not make the top ten), according to a SiliconHub report. SiliconHub also highlights that Samsung's 2nm nanosheet process, while promising, faces yield challenges and customer retention issues, with trial production of its Exynos 2600 processor achieving only 30% yield rates. Intel, meanwhile, is racing to deliver its 18A node by H2 2025 but must overcome a history of manufacturing delays to compete effectively.

The U.S. government's CHIPS Act subsidies further cement TSMC's advantage, as the company expands production in Arizona, Texas, and New York, notes a PSMarketResearch report. These investments not only diversify its manufacturing footprint but also align with global demand for secure, advanced-node production.

Conclusion: A Compelling Investment Case

TSMC's combination of technological innovation, pricing power, and margin resilience makes it a standout in the semiconductor sector. BofA's upgraded target to NT$1,400 reflects confidence in the company's ability to navigate industry headwinds while capitalizing on AI-driven demand. PSMarketResearch projects the foundry market will grow at a 5.2% CAGR through 2032, and TSMC's leadership in advanced nodes and packaging positions it to outperform peers and deliver sustained value to investors.