Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) is about to announce its performance, with Morgan Stanley looking ahead at three key variables.

Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) is set to announce its financial report on Thursday, with its stock price performance and earnings expectations driven by "differentiated demand + technology premium" logic. Morgan Stanley has a target price of 1288 New Taiwan dollars, implying a 17.6% upside, and maintains a "buy" rating. Revenue forecast: Third quarter may be a turning point Morgan Stanley believes that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's revenue growth in 2025 exists in three scenarios: if third-quarter revenue increases by 5% (over 30% year-on-year), the full-year revenue growth is expected to exceed 30%; if the increase is 0-3% (approximately 20% year-on-year), then the full-year growth will fall to the 20% range; in the most pessimistic scenario with a decrease of 1-3%, the full-year growth will remain around 20%. This flexibility highlights the structural differentiation in the demand for the semiconductor industry, with AI server chip demand remaining strong while consumer demand for smartphones and PCs remains weak. It is worth noting that the utilization rate of advanced process production capacity of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR did not decline in the second half of 2025, with the continuous expansion of NVIDIA Corporation's NVDA.US GB200 series chips being a key support. Resilient gross margin: the pricing power behind the 53% red line Morgan Stanley predicts that the gross margin in the third quarter will maintain a high range of 53%-58%, even in the most pessimistic scenario, it can still hold the 53% red line. This judgment is based on two main supports: firstly, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR adopts a "technology premium + capacity bundling" strategy for major customers, with a 20%-25% increase in pricing for 3nm process over 5nm; secondly, the CoWoS advanced packaging utilization rate exceeds 95%, continuously diluting unit costs. Of particular note, the research report suggests the possibility of an increase in wafer prices in 2026, and if demand for AI remains strong by then, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR is expected to further strengthen its profit barrier through pricing strategies. Demand drivers: AI supports half the sky The research report reveals three upward risks to Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's performance: 1) AI chip demand exceeds expectations, with current orders for H100/H200 chips scheduled until 2026; 2) Intel Corporation's (INTC.US) CPU outsourcing business accelerates in 2025-2027, expected to contribute 5%-8% revenue growth; 3) the resurgence of the cryptocurrency market drives up ASIC chip production. Downside risks include: 1) continued adjustment in consumer electronics inventory until the end of 2025; 2) slower-than-expected expansion of customers below 3nm process; 3) cost overruns in US/European factory operations. Morgan Stanley emphasizes that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's technological lead in advanced processes (20 percentage points lower in yield than Samsung's 2nm process) constitutes a core moat. Investment focus: three variables determine valuation flexibility Morgan Stanley advises investors to focus on three signals from the July 17 Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR Investor Day: 1) whether the full-year revenue guidance is revised upwards to the 30% range; 2) clear articulation of wafer price strategy for 2026; 3) quantification of the sustainability of AI demand and the pace of non-AI application recovery. If all three variables move positively, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's valuation is expected to exceed a dynamic price-earnings ratio of 25 times, otherwise, downside risks at a price-earnings ratio of 15 times should be monitored. Against the backdrop of escalating trade protectionism, the research report specifically highlights the impact of a 6% import tariff imposed by the US on Taiwan's customers, but emphasizes that its technological indispensability will weaken the tariff impact. Conclusion: Certainty and uncertainty in cyclical fluctuations This research report reflects the special positioning of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR: it is both a barometer of the semiconductor cycle and a beneficiary of the AI revolution. As traditional consumer electronics demand weakens and demand for cutting-edge technology surges, the performance flexibility of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR becomes the best sample to test whether "technology premiums can transcend cycles." For investors, grasping the key guidance from the Investor Day may become the core determinant of semiconductor investment in the second half of 2025.