JP Morgan Analyzes Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) CoWoS "Order Cut Doubts": Strong Demand Continues, Tightening Capacity Expected by 2025.

JPMorgan recently released a research report in response to rumors of order cuts for Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) CoWoS. According to their supply chain research, the bank believes that the initial overestimation of demand for 2025 does not mean that there is a demand issue. Additionally, they believe that due to Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's near-monopoly position in the AI accelerator and edge AI fields, structural growth momentum will remain strong, and they maintain their "overweight" rating on the stock, setting a target price of NT$1500 for December 2025. Addressing the "CoWoS order cut" rumors during strong demand and tight supply periods JPMorgan reports that they have recently received inquiries from investors regarding significant reductions in CoWoS orders from different customers of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (mainly NVIDIA Corporation, Marvell Technology, Inc./Amazon.com, Inc. Cloud Technologies for the second generation Trainium chips). Based on their supply chain research, the optimistic expectations of customers like NVIDIA Corporation, Marvell Technology, Inc./Amazon.com, Inc. Cloud Technologies for the second generation Trainium chips (Trn2) have indeed cooled down, leading to an initial overestimation of demand for 2025, far exceeding the supply capacity of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR. They have already lowered their forecasts by around 8-10%. However, they believe this does not indicate a demand issue. Overall, the demand for CoWoS in 2025 is still higher than the supply capacity of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR and its ecosystem. They continue to maintain their forecasts for CoWoS and believe that NVIDIA Corporation will still be able to deliver approximately 6 million Blackwell chips in 2025. According to their research, NVIDIA Corporation's 2025 capacity expectations have been lowered by around 40-45 thousand wafers, and expectations for other ASIC customers have also been slightly adjusted. However, these adjustments seem to be mainly due to customers lowering their excess order volumes, as Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR now requires customers to make more accurate forecasts closer to delivery in 2025. The bank notes that recent supply chain forecasts for CoWoS production have been quite aggressive, with Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's CoWoS capacity expected to reach up to 85-90 thousand wafers per month by the end of 2025 (annual capacity exceeding 800 thousand wafers). Their expectations have been more conservative, with Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's CoWoS capacity reaching 75 thousand wafers per month by the end of 2025, totaling 725 thousand wafers in 2025, without considering any yield losses, especially for the CoWoS-L process. Guo Mingchi, an analyst at TF International Securities, also stated that according to their industry survey results, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's CoWoS 2.5D advanced packaging production is expanding each quarter, and the plan to achieve a monthly capacity of approximately 70 thousand wafers by the end of this year remains unchanged. NVIDIA Corporation's plan to deliver a total of 370 thousand wafers to Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR for CoWoS this year has also not changed significantly. No demand issues identified, CoWoS capacity remains tight in 2025 It is worth noting that JPMorgan's research has not found any demand issues with NVIDIA Corporation or ASIC suppliers. Overall demand trends are better than expected, with demand exceeding expectations for NVIDIA Corporation's B200/B300 chips, strong demand for H200 and H20 chips after Deepseek, and rapid growth in demand for projects like Amazon.com, Inc. Cloud Technologies' Trainium2 ASIC. Statements from NVIDIA Corporation, OpenAI, and U.S. hyperscale data centers all indicate that demand from U.S. cloud computing service providers (CSPs) and AI labs remains very strong, and Chinese cloud computing service providers led by Alibaba Group Holding Limited Sponsored ADR have also begun a strong investment cycle in AI infrastructure. The bank believes that even if Taiwan Semiconductor ManufactuThe production capacity of Co., Ltd. Sponsored ADR's CoWoS has more than doubled, and its overall production capacity may still be tight throughout 2025.In addition, the bank's research on the supply chain indicates that the demand for orders for front-end wafers (N4/N5 process) from artificial intelligence accelerator suppliers is still strong by 2025, indicating a healthy demand situation. Preliminary surveys on other bottleneck components such as High Bandwidth Memory (HBM) also suggest that demand has not weakened. What has led to this widespread talk of order cuts? The bank believes that there are four reasons that may lead to supply chain adjustments, which are then perceived as order cuts: Firstly, by the end of 2025, demand forecasts for wafers from Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADRCoWoS have reached unrealistic levels from the bottom up, and are now gradually adjusting to more realistic levels that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR can achieve. Secondly, considering multiple product changes from NVIDIA Corporation, as well as uncertainties in product release times and demand (Blackwell design challenge, B200A launch/cancel, B300A demand expectations, and the continuous rise in demand for the H20 chip in the Chinese market), the bank believes that overall forecasts at various points in the supply chain may be too high. Thirdly, as Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR nears production time in 2025 and the initial capacity allocation decision point in 2026, the bank believes the company may be pushing customers to more accurately predict demand. Supply chain discussions on order cuts for all artificial intelligence ASIC suppliers within the same week, while front-end wafer orders have not decreased, indicate that this is not a demand issue. Fourthly, the bank prioritizes orders from Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, with Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR prioritizing CoWoS-L production, while most of NVIDIA Corporation's CoWoS-S has now been outsourced to OSATs, and CoWoS-R for Trainium2 may also be transferred to Amkor in the second half of 2025. The situation is still evolving, but currently the bank believes that this is not a demand-related change, so it basically maintains the CoWoS expectations. The bank expects NVIDIA Corporation's demand for Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's CoWoS-L wafers to be around 390,000 pieces, and Amazon.com, Inc.'s cloud technology demand (combined with Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR and outsourced testing factories) to be around 85,000 pieces per month. Considering that the recent increase in demand for H20 chips from Chinese customers has not yet been reflected in the upstream supply chain, the expectations for CoWoS-S are likely more unstable. NVIDIA Corporation and Amazon.com, Inc. cloud technology demand remains strong NVIDIA Corporation will account for 60% of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's CoWoS wafer demand in 2025, enough to produce 6 million Blackwell chips. Despite some adjustments in the supply chain's overestimation of CoWoS demand, the bank believes that NVIDIA Corporation's demand should still be quite strong. In 2025, its demand for Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's CoWoS-L wafers will reach 390,000 pieces (taking into account the lower yield rate for CoWoS-L in the first half of 2025, the adjusted quantity will be lower), enough to produce approximately 6 million Blackwell chips and fewer than 1 million Hopper GPUs. Looking ahead to 2026, the bank expects NVIDIA Corporation's demand for CoWoS wafers from Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR to grow by around 20% (consistent with previous expectations), enough to produce 7.5 million Blackwell and Rubin chips. In 2025, Amazon.com, Inc.'s cloud technology Trainium2 will represent the main growth area for AI ASICs. The bank still believes that demand for Trainium2 in 2025 should exceed 1.5 million units, accounting for over 50% of upstream production in the first half of the year. ASIC demand is inherently more volatile and more sensitive to changes in individual customers. The bank believes that by the second quarter of 2025, investor focus on Amazon.com, Inc.'s cloud technology ASICs may shift towards production forecasts for Trainium3 in 2026. As previously mentioned, due to product transformation challenges, other ASIC projects such as Alphabet Inc. Class C TPU may slow down in momentum in 2025. Short-term AI sentiment dampened, but long-term demand remains strong Regarding rumors of order cuts, JP MorganIt is believed that the sentiment in the artificial intelligence market may be dampened in the short term, as any news of order adjustments will initially be seen as a negative impact on the market sentiment. However, the underlying demand remains strong. After the Deepseek incident, concerns arose in the market about a collapse in demand for artificial intelligence hardware, but the bank has observed that the demand for training and inference hardware is accelerating.The main downside risk for artificial intelligence stocks is further restrictions by the United States on the sale of NVIDIA Corporation's AI chips to China. However, considering that most AI semiconductor stocks have already dropped 15-30% from their peak, this risk seems to have been partially anticipated and reflected in the stock prices. This volatility has not affected JP Morgan's positive outlook on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR and its AI ecosystem. The bank expects strong structural growth momentum for Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR due to its dominant position in AI accelerators and edge AI with its powerful process nodes (N3 and N2) and industry-leading packaging technology. Whether in data centers or edge computing, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR is a driver of AI development in various forms like GPUs, ASICs, PC CPUs, and smartphone SoCs. With increasing focus on CoWoS-L in the coming years, the bank continues to have a positive view on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's outsourcing partners such as ASE. In the short term, concerns about capacity expansion slowing down after 2026 may put more pressure on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's backend capital expenditure ecosystem. Furthermore, due to Intel Corporation's 18A process production speed being slower than expected and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR maintaining its technological lead, the bank believes that Intel Corporation is highly likely to outsource more to Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR in 2026/2027, possibly even adopting the N2 process. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's pricing power is expected to significantly boost profit margins, further supporting the bank's optimistic view.