Needham analyst Charles Shi reiterated Taiwan Semiconductor Manufacturing Co TSM with a Buy and a $168 price target.

Sji analyzed Taiwan Semiconductor, or TSMC, during its 2024 North America Technology Symposium.

The analyst noted that TSMC sees N3 family capacity tripling from 2023 to 2024 and a CoWoS capacity CAGR of 60%+ from 2022 to 2026.

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Informed by TSMC’s fourth-quarter 2023 financials and assuming N3 wafer price to be ~$21K, Shi estimates TSMC had roughly 40K capacity exiting 2023. He said that tripling the capacity from 2023 to 2024 means that TSMC N3 will likely reach 120K exiting the year. Shi noted a portion of the 80K incremental capacity will come from the conversion of N5 capacity in the second half of 2024, and the rest will come from TSMC’s existing equipment installed base that has yet to go online.

TSMC officially confirmed that Nvidia Corp NVDA Blackwell is packaged with CoWoS-L, implying Nvidia has largely skipped CoWoS-R. 

TSMC is working on an 8x-reticle-size CoWoS with four A16 SoIC chips and 12 HBMs for production in 2027. Shi found the combination of SoIC into CoWoS and the increase of HBM modules from 8 to 12 quite notable.

According to the analyst, TSMC is still on track to double CoWoS capacity to 40K in 2024. This means that between 2022 and 2024, TSMC’s CoWoS capacity CAGR was actually 100%. This also means that TSMC will only have to add roughly 15K CoWoS capacity per year in 2025 and 2026.

TSMC sees a SoIC capacity CAGR of 100%+ from 2022 to 2026 and 30 customer tape-outs by the end of 2026. 

The analyst found the update incrementally bullish for TSMC’s second half of 2024 and HBM and hybrid bonding supply chains in 2025 and 2026 but largely neutral for the CoWoS supply chain.

Price Action: TSM shares traded higher by 1.64% at $156.18 premarket at the last check on Wednesday.

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