Earthquake impact overall controllable JP Morgan reiterates "overweight" rating on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US), AI and HPC demand will help drive growth.

Despite the impact of the earthquake in January 2025 on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) production, JPMorgan remains positive about its future performance. JPMorgan recently reiterated its "overweight" rating on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, emphasizing its potential to continue benefiting from the growth in AI and HPC applications, making it a key player in the semiconductor industry. Leading market position and process technology JPMorgan pointed out that the structural growth drivers in AI accelerators and edge AI for Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, strong process roadmap (N3 and N2), and industry-leading packaging technology; Intel Corporation may need to outsource more business to Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, further supporting this positive outlook. The bank believes that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's near-monopoly position in AI accelerators and edge AI fields will continue to be maintained, primarily due to its strong process roadmap (N3 and N2) and industry-leading packaging technology. In addition, Intel Corporation may need to outsource more business to Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR in 2026/27, further consolidating its market position. CoWoS (Chip-on-Wafer-on-Substrate) and SoIC (System-on-Integrated-Chip) technologies for Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR are key to its future growth. CoWoS capacity is expected to continue growing until 2027 to support AI accelerator demand and emerging non-AI applications. SoIC technology is also expanding, with capacity expected to reach 20,000 and 25,000 wafers per month by the end of 2026 and 2027, respectively. Furthermore, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's expansion plans in the United States and the potential for more outsourcing business from Intel Corporation further support its positive outlook. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR is expected to hold a board meeting in the United States and following recent remarks by President Trump, investors expect the company to further expand in the U.S. JPMorgan expects Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR to announce more aggressive U.S. expansion plans in the next 1-3 months. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's further push for advanced manufacturing localization in the U.S. is expected to alleviate concerns about potential tariffs. Controllable impact of the earthquake In January 2025, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's sales reached NT$293 billion, up 36.9% year-on-year and 5.4% month-on-month. However, due to the impact of the January 21 earthquake, the company lowered its revenue guidance for the first quarter of 2025 to the lower end of the range (US$25-25.8 billion). The earthquake resulted in wafer scrap at the N3 and N5 nodes, with an estimated impact of approximately US$1 billion on first-quarter revenue in 2025, accounting for about 4% of expected revenue. Despite the impact of the earthquake, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR maintains its gross margin (57-59%) and operating margin (46.5-48.5%) guidance for the first quarter of 2025. The company expects earthquake-related losses of NT$5.3 billion (after insurance claims), accounting for only 1% of expected first-quarter operating profit. JPMorgan believes that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's strong pricing power and strong demand for AI/HPC applications will continue to support its gross margins. The company's full-year performance guidance remains unchanged, with supply of advanced processes expected to gradually recover in the second quarter and beyond in 2025. In summary, JPMorgan believes that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, with its leading position in advanced processes (N3/N5) and packaging technologies (CoWoS, SoIC), will continue to benefit from the growth in AI, HPC, and edge computing.Demand is expected in the short term. Despite short-term seismic disturbances and risks associated with GEO Group Inc, capacity expansion, customer diversification (NVIDIA Corporation, Apple Inc., AWS, etc.) and improved pricing capabilities support revenue and profit margin growth.Despite the impact of the earthquake in January 2025 on production, the company's financial performance remains strong. The expansion plan of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR in the United States, as well as the potential to acquire more outsourcing business from Intel Corporation, further support positive prospects.