Investment bank Morgan Stanley has released a new investment guide for TSMC Taiwan stocks. TSMC's stock price in Taiwan fell 5.7% today as the market reacted to the possibility of tariffs on TSMC's products imported into the United States. Morgan Stanley maintained TSMC's target share price of NT$1,388 in its report, emphasizing that although tariffs will affect the company's short-term performance, TSMC's competitive advantages will ensure that it attracts most of the world's chip orders.
According to Taiwanese media reports, Morgan Stanley believes that tariffs will affect TSMC’s long-term profits and gross profit margins. The Taiwanese company's shares closed down 5.7% on the Taiwan Exchange earlier today, with Morgan Stanley adding that TSMC's short-term results could take a hit until the U.S. and Taiwanese governments provide further clarity on relevant measures.
The investment bank believes that TSMC's manufacturing process advantages can help it withstand most shocks in the long run. TSMC's 3-nanometer manufacturing technology is one of the most advanced chip manufacturing technologies in the world, and the company also benefits from stable production yields compared with other companies such as Samsung.
Yield refers to the number of usable chips per wafer, and the cost of any defects is borne by the manufacturer, resulting in lower profit margins.
Morgan Stanley believes that TSMC's competitive advantage means that the company will continue to occupy a high market share in the advanced chip manufacturing market despite the tariffs. Morgan Stanley believes that in addition to advanced manufacturing processes, long-term growth and low valuations driven by demand for artificial intelligence mean investors will instead focus on TSMC’s profit margins.
Building large-scale foundries and developing the latest chip manufacturing technology requires decades of investment. This gives companies like TSMC a considerable advantage, creating a high barrier to entry for any competitor looking to set up shop.
Morgan Stanley analysts added that TSMC's U.S. customers will account for 60% to 70% of its revenue this year. He also pointed to previous statements by TSMC management that customers would bear any burden from tariffs, not chipmakers. Therefore, any price increases from tariffs could change pricing and, in turn, demand dynamics in the technology industry.
Another hot topic is the possible elimination of subsidies for TSMC to build advanced chip manufacturing facilities in the United States. In this regard, Morgan Stanley believes that subsidies account for only 10% of TSMC’s U.S. capital expenditures. Therefore, the impact on TSMC's profit margin will be less than 0.5%, as TSMC's depreciation expenses account for 40% to 50% of the company's cost of sales.