TSMC Stock Rallies After Morgan Stanley Names It Top Pick on AI Demand

Taiwan Semiconductor Manufacturing Co. (TSMC) has surged into the spotlight as Morgan Stanley upgraded the company to its top pick in the semiconductor sector, citing robust AI-driven demand and the resolution of lingering uncertainties. The brokerage’s May 2025 report highlights TSMC’s critical role in enabling the next wave of artificial intelligence (AI) infrastructure, with the stock rallying over 3-4% in the days following the upgrade.

AI-Driven Growth Takes Center Stage

The report emphasizes that TSMC’s fortunes are increasingly tied to the AI revolution. Meta and Microsoft, two of the company’s largest clients, have significantly raised their capital expenditure (capex) projections for 2025, signaling sustained demand for advanced semiconductor technology. Meta’s capex guidance now sits at $64 billion–$72 billion, up from its prior $60 billion–$65 billion range, while Microsoft is shifting capex toward shorter-cycle server equipment to expand data center capacity. These moves underscore the escalating need for high-performance AI chips, which rely on TSMC’s cutting-edge manufacturing processes.

A key enabler of this demand is TSMC’s advanced packaging technology, particularly its CoWoS-L (Chip-on-Wafer-on-Substrate-L) platform. This technology integrates multiple chips onto a single substrate, enabling the dense AI computing required for large language models and generative AI applications. Despite earlier concerns about potential order cuts from NVIDIA, supply chain checks confirm CoWoS-L demand remains robust.

Overhangs Fade, Valuation Rebounds

Morgan Stanley notes that three key risks have now been resolved or mitigated:
1. AI Demand Sustainability: Meta’s capex boost and stable CoWoS-L demand dispel fears of a near-term AI slowdown.
2. Intel Joint Venture (JV) Risks: TSMC has ruled out a JV with Intel, clarifying that its 2nm (N2) process will share capacity with Intel’s 18A node but retain full control over production.
3. U.S. Tariff Uncertainties: TSMC’s $165 billion U.S. investment plan, including its Austin and Arizona facilities, strengthens its case for tariff exemptions.

The brokerage lowered its price target for TSMC’s U.S.-listed shares to NT$2,330 (approximately $173.79) from NT$2,454 but maintained its Overweight rating. Analyst consensus remains bullish, with a 12-month average target of $216.58—a 20.87% upside from current levels—and a 1.6 average recommendation score (1 = Strong Buy, 5 = Sell).

Financial Strength and Long-Term Momentum

TSMC’s financials back its strategic position: the company reported a 40% year-on-year revenue surge in its latest quarter and a trailing 12-month EBITDA of $64.4 billion. Its advanced 2nm (N2) node and packaging technologies are poised to capture AI-driven data center demand, with the sector expected to account for a growing share of its revenue.

Analyst sentiment is largely aligned. Daiwa Securities upgraded TSMC to Buy, citing strong Q2 revenue projections but noting tariff risks. Bernstein maintained an Outperform, praising TSMC’s packaging technology as a “strategic asset.” Even cautious notes from Stifel and JPMorgan, which reduced price targets due to end-demand concerns, retained Overweight ratings, acknowledging TSMC’s long-term leadership in AI chip production.

Conclusion: TSMC’s Undervalued Dominance

Morgan Stanley’s report positions TSMC as a critical beneficiary of AI’s growth trajectory. With a 2025 P/E ratio of 15.5x—below peers like Intel (20.2x) and Samsung (17.8x)—the stock appears undervalued. The $165 billion U.S. investment further insulates TSMC from geopolitical risks, while its technology leadership ensures it will profit from the AI boom.

While near-term risks like tariff decisions and macroeconomic conditions linger, the consensus is clear: TSMC’s combination of advanced manufacturing, stable AI demand, and resolved overhangs makes it a compelling long-term investment. At current valuations, the stock offers a rare blend of growth and resilience—a top pick for investors betting on the next era of technology.