Bank of America: Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) shifts capital expenditure towards "front-end leaning" to prepare for mass production of 2 nanometer chips and AI chip demand in 2026.

Bank of America Corp stated that the capital budget approved by the board of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) recently, with a total of up to $45 billion, exhibits a very distinct structured feature, with funds focusing heavily on advanced front-end manufacturing processes and the infrastructure development of large-scale wafer fabrication facilities. Analyst Haas Liu from the bank gave Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR stock a "buy" rating with a target price of NT$2360. It is understood that the board of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR announced two major decisions on Tuesday: firstly, approving the distribution of a quarterly dividend of NT$6.0 per share; and secondly, allocating $45 billion for wafer factory construction, capacity installation, and technology upgrades, covering advanced front-end processes, specialty technologies, mature nodes, and advanced packaging technologies. In addition, the company simultaneously allocated an additional NT$1.2 billion to its subsidiary in Arizona for support. Liu believes that this shift in budget structure aligns closely with Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's aggressive capital expenditure plan for 2026. According to forecasts, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's total capital expenditure for 2026 is expected to increase to a range of $52 billion to $56 billion, showing a significant growth of about 27% to 37% compared to 2025. This surge in growth is particularly noteworthy at the quarterly level, marking another peak in capital investment since the first half of 2024 when Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR experienced a wave of expansion in CoWoS advanced packaging. The report emphasizes that this "front-end lean" resource allocation is essentially paving the way in advance for the large-scale production of 2-nanometer (N2) and A16 technologies, ensuring that there is sufficient cleanroom space and capacity supply at critical points during technical iterations. Bank of America Corp analyst Haas Liu wrote in a client report: "Regarding capital allocations, we find it noteworthy that this round of funding is leaning towards advanced front-end manufacturing and facilities/clean rooms. While quarterly approval amounts may appear uneven, the cumulative amount shows a significant year-on-year growth for the first time since the first half of 2024back then, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR was preparing for the large-scale expansion of CoWoS and further enhancement of 3-nanometer production capacity after the industry downturn in 2023. This aligns with Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's proactive capital expenditure guidance for 2026, including additional 3-nanometer capacity, enhancement of 2-nanometer capacity, readiness of A16 technology, expansion of advanced packaging capacity, and advancement of the technology roadmap. We will monitor whether this trend continues based on supply chain feedback as an indication of its capital expenditure prospects." From a deep-driving perspective, the expansion of capital expenditures by Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR this time around is primarily driven by the ever-increasing demand for high-performance chips in the field of artificial intelligence. The management has publicly stated multiple times before that the demand for advanced processes in AI development far exceeds expectations, prompting the company to accelerate the construction of mega wafer fabrication facilities globally, including key bases like Arizona. By establishing high capital and technological barriers in the front-end manufacturing sector, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR aims to widen the gap with competitors like Samsung, Intel Corporation, and utilize the certainty of capacity to secure long-term cooperation intentions with core customers like NVIDIA Corporation, Apple Inc., and large cloud service providers. Bank of America maintained its "buy" rating on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR in the summary, pointing out that the clear budget structure reflects the company's strategic strength in dealing with cyclical fluctuations in the semiconductor industry. With the steady progress of the 2-nanometer technology roadmap, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR is transforming its technological advantage into absolute market share through this saturated resource allocation. This scale expansion will not only support its profit growth expectations after 2026. In addition, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR also announced on Tuesday that its January revenue increased by 37% year-on-year to NT$401.3 billion (approximately $12.7 billion), exceeding its full-year revenue growth expectation of 30%. However, as the Lunar New Year holiday in 2025 fell in January, there may be fluctuations in this data compared to the same period last year.