AI Surge Boosts Demand: Nvidia Praise Fuels New Market Hopes as Morningstar Finds TSMC Stock Undervalued

The global excitement around artificial intelligence (AI) is significantly driving demand in the semiconductor industry, with Taiwan Semiconductor Manufacturing Co. (TSMC) at the forefront. Nvidia's CEO, Jensen Huang, has praised investments in TSMC stocks as "very wise," highlighting the company's pivotal role in the tech industry. Despite geopolitical risks, analysts see potential for growth. TSMC, the world's largest contract chip manufacturer, recently surpassed a market value of one trillion USD, driven by the burgeoning demand for AI-related semiconductors. The company manufactures chips for industry giants like Nvidia and AMD, underscoring its critical position in the tech supply chain. In recent developments, TSMC has completed the development of new graphics processors and silicon photonics processors for Nvidia's supercomputers. To navigate US sanctions, TSMC is reportedly reducing its use of Chinese equipment in its most advanced factories, according to a report from Nikkei.

Market Analysis

Analysts remain optimistic about TSMC's prospects. According to FactSet data, 42 out of 44 experts recommend buying or overweighting the stock, with an average target price of 1,354 New Taiwan Dollars, suggesting an upside of approximately 15%. However, some caution remains. Tariq Dennison of GFM Asset Management advises prudence amid widespread optimism, citing geopolitical risks and potential technological shifts as areas of concern. Conversely, Arthur Lai from Macquarie Capital highlights advancements in packaging technologies, predicting growth based on increased demand for TSMC's CoWoS chips, as confirmed by Huang's recent comments. Lai has raised his forecasts for TSMC's revenue and net profit following the latest quarterly results. Morningstar analyst Phelix Lee shares a positive outlook, awarding TSMC five stars and increasing his target price to 1,800 New Taiwan Dollars. Lee believes the market underestimates the longevity of the AI boom, noting, "TSMC is undervalued as tariffs are overestimated and the longevity of AI investments underestimated." As the AI market continues to expand, TSMC's strategic position and technological capabilities make it a central player in the industry's growth narrative. Investors and analysts alike will be closely watching how the company navigates challenges and seizes opportunities in this dynamic environment.