Surging AI demand is driving Taiwan Semiconductor Manufacturing (NYSE: TSM) into a new, larger-scale capital investment cycle.

Goldman Sachs significantly raised its capex forecasts for Taiwan Semiconductor Manufacturing (NYSE: TSM) for 2027 and 2028 to $85 billion and $98 billion, respectively, up sharply from prior estimates of $78 billion and $82 billion. At the same time, Goldman expects the company's potential new fab in Texas to begin mass production only after 2032, implying the current expansion cycle will span far longer than the market previously anticipated. The report maintained a "Buy" rating on Taiwan Semiconductor Manufacturing (NYSE: TSM) and raised its 12-month target price for the Taiwan-listed shares from NT$3,100 to NT$3,300, implying 28% upside from the current price. The ADR target price was also lifted from $620 to $660, implying roughly 40% upside.

Goldman analysts Evelyn Yu and James Schneider noted in the report that the coordinated expansion of demand for AI accelerators, networking chips and server CPUs constitutes the core growth driver for Taiwan Semiconductor Manufacturing (NYSE: TSM) over the next two years. Goldman forecasts revenue growth in US dollar terms of 42.0% in 2026 and 36.9% in 2027, and raised its 2027 and 2028 earnings per share estimates by 6.5% and 8.2% to NT$150 and NT$195.67, respectively. The report also emphasized that Agentic AI is accelerating server CPU demand, marking one of the most notable structural shifts in demand over the past year.

Sharp Capex Increase, Texas Fab Mass Production Delayed Beyond 2032

Goldman maintained its 2026 capex forecast for Taiwan Semiconductor Manufacturing (NYSE: TSM) unchanged at $64 billion, but raised its 2027 and 2028 forecasts from $78 billion and $82 billion to $85 billion and $98 billion, respectively.

Goldman attributed the upward revision to two factors: cost inflation pressure from equipment suppliers and initial spending on the potential new Texas fab.

However, Goldman explicitly noted that the Texas fab is not expected to enter mass production until after 2032 and will not make a meaningful contribution to capacity in the near term. For existing plans, Goldman kept its capacity forecasts for Taiwan Semiconductor Manufacturing (NYSE: TSM) N3 and N2 processes unchanged: N3 and N2 capacity of 200,000 and 140,000 wafers per month by the end of 2027, expanding further to 220,000 and 200,000 wafers per month by the end of 2028.

In advanced packaging, Goldman expects CoWoS annual capacity to grow from 675,000 wafers in 2025 to 2.73 million wafers in 2027 and 3.48 million wafers in 2028, with year-over-year growth consistently exceeding 100%, providing critical support for large-scale AI chip shipments.

Strong Sequential Growth in Q3, N2 Ramp to Briefly Pressure Gross Margins

Goldman expects Taiwan Semiconductor Manufacturing (NYSE: TSM) revenue to grow 15.3% quarter-over-quarter in Q3 in US dollar terms and a further 11.0% in Q4, maintaining rapid expansion throughout the year on the back of strong AI and high-performance computing demand.

On profitability, Goldman forecasts gross margins of 67.5% in Q3 and 67.3% in Q4, slightly down from 67.7% in Q2, mainly reflecting the short-term cost dilution effect from the N2 process ramp. Entering 2027, gross margins are expected to recover to 67.5% as N2 yields improve, product mix optimizes and utilization remains high, with further improvement to 67.8% in 2028.

Goldman also raised its earnings forecasts for 2026 through 2028, with 2026 earnings revised up 1% and 2027 and 2028 revised up 7% and 8%, respectively, mainly due to lower-than-expected N2 ramp margin dilution and higher-than-assumed utilization of N2/N3 processes driven by AI and high-performance computing demand.

AI Demand Landscape Expands, Server CPUs Emerge as New Growth Driver

Goldman emphasized in the report that Taiwan Semiconductor Manufacturing (NYSE: TSM) AI demand drivers are extending from GPU accelerators to a broader range of applications. The report cited management comments at the Communacopia technology conference that declining AI inference costs will stimulate larger-scale AI application consumption, while continued investment by US cloud service providers further reinforces demand visibility.

The rise of Agentic AI is accelerating server CPU demand, which Goldman identified as the most important structural change in demand over the past year. This means Taiwan Semiconductor Manufacturing (NYSE: TSM) advanced process customer base is broadening further, no longer limited to AI accelerator customers such as Nvidia but extending to CPU players including Intel and AMD. Management also stated that despite continued N2 and N3 capacity expansion, supply remains unable to meet robust demand.

Goldman said that at the upcoming Q3 analyst meeting on October 15, the market will focus on management's latest assessment of AI demand outlook through 2030, the scale and timeline of US expansion plans, and whether Taiwan Semiconductor Manufacturing (NYSE: TSM) technological lead over Intel, Samsung and emerging competitor Terafab can continue to widen.