Top Wall Street investment banks are conveying a stark and simple truth to the market: the super-cycle for AI hardware is just beginning, and Taiwan Semiconductor Manufacturing (TSM) is the unshakable "toll booth" in this feast.

According to market tracking, J.P. Morgan and Nomura Securities released reports on January 7th, both significantly raising their target prices for TSMC in a notable consensus. J.P. Morgan lifted its target price to NT$2,100, while Nomura was even more bullish, setting a target of NT$2,135.

The logic behind this is straightforward and powerful: extreme capacity shortages and seemingly bottomless demand. AI data center demand is forcing TSMC into a new phase of structural growth. J.P. Morgan stated directly that TSMC's dollar-denominated revenue will surge 30% in 2026 and maintain growth exceeding 20% into 2027. Nomura pointed out that, constrained by severe supply shortages, TSMC possesses formidable pricing power, leading them to set their target price directly at NT$2,135.

What does this mean for investors? J.P. Morgan and Nomura Securities believe:

Valuation Re-rating: Target prices have been substantially raised to above NT$2,100, implying significant upside potential from the current stock price.

Soaring Capital Expenditure: To meet demand, TSMC's capital expenditure in 2026 will approach $50 billion, potentially skyrocketing to over $55 billion in 2027, which will drive the entire semiconductor equipment supply chain.

Deepening Moat: In the realms of 2nm and advanced packaging (CoWoS), TSMC faces almost no competition; this monopolistic position will translate into sustained high gross margins.

2026 Revenue Pegged for 30% Growth, AI Becomes the Absolute Primary Engine J.P. Morgan predicts that 2026 will be another year of robust growth for TSMC, with year-on-year dollar revenue growth reaching 30%, while 2027 will also sustain growth above 20%. The core driver behind this growth is unequivocally data center AI demand.

AI Revenue Share Soars: J.P. Morgan raised its compound annual growth rate (CAGR) forecast for data center AI revenue from 2024-2029 from 53% to 57%. It is projected that by 2029, the data center AI business will account for over 40% of TSMC's total revenue (compared to only a mid-teens percentage in 2024). Nomura also emphasized the rapid increase in the proportion of AI business. While its report did not provide a specific projection for the 2029 share, it clearly stated that the "severely constrained supply" of AI semiconductors is the key driver behind the upward revision of consensus earnings expectations, and identified AI chips and the server supply chain as "anchor points" for the Asian market.

Full Migration to N3: In 2026, almost all AI accelerators (including NVIDIA's Rubin, Broadcom's TPU v7/v8, Amazon's Trainium 3, etc.) will migrate to the 3nm process (N3). Additionally, demand for Apple's iPhone and modem chips will also drive N3 capacity utilization.

Dominance in Advanced Processes Solidifies: N2 Ramp-Up Speed Astounds, N3 Demand Explodes Despite market chatter about competition from Intel and Samsung in advanced processes, J.P. Morgan clearly stated that it sees no signs of any market share loss for TSMC at the N2/A16 node. TSMC's market share for AI accelerators in the N2 era is expected to remain above 95%.

N2 (2nm) Explosion: The capacity ramp-up speed for N2 will be significantly faster than for N3 and N5. J.P. Morgan expects N2 revenue to reach $8 billion in 2026, surging to $36 billion by 2027. Nomura also noted that N2 has begun mass production at TSMC's Hsinchu and Kaohsiung facilities, with initial customers including Apple (iPhone 18 series) and AMD.

N3 (3nm) Capacity Expansion: To meet demand, TSMC is aggressively expanding N3 capacity. J.P. Morgan expects N3 capacity to reach 147,000 wafers per month by the end of 2026. This includes converting some N4 capacity to N3 and utilizing Fab 14 for cross-fab operations.

Data Center AI CAGR Revised Up to 57%, Advanced Packaging Capacity Remains Tight Beyond advanced process wafers, advanced packaging is another critical component of growth.

CoWoS Capacity Surge: J.P. Morgan forecasts that TSMC's CoWoS capacity will grow by 69% in 2026, reaching 115,000 units per month by Q4 2026 (compared to 68,000 at the end of 2025). Even so, a supply-demand gap of 15-20% remains, indicating that capacity tightness will persist into 2027.

Non-Wafer Revenue Growth: Driven by the strong expansion of CoWoS and rising adoption of SoIC (System-on-Integrated-Chips) in 2027, non-wafer revenue is expected to grow by 44% and 29% in 2026 and 2027, respectively.

Capital Expenditure Enters an Upcycle, Gross Margins Stabilize Above 60% To address strong demand expected to last from 2026 through 2028, TSMC is initiating a new upcycle in capital expenditure.

Capital Expenditure: J.P. Morgan Forecast: Capex of approximately $48 billion in 2026 (constrained by cleanroom availability), jumping to $55 billion in 2027 to support expansion of N2, N3, and US fabs. Nomura Forecast: Capex maintained at $45-50 billion in 2026, accelerating to $55-60 billion in 2027.

Gross Margin (GM): J.P. Morgan View: Expects gross margins to stabilize in the low-60% range. In H1 2026, due to a 50-100% premium from numerous rush orders, gross margins could spike to 62-63%. Nomura View: Expects gross margins to reach 61.5% in 2026-2027. Nomura specifically mentioned that TSMC might raise base prices for N5/N3 by 5-10% in January 2026 to alleviate cost pressure, which would also be a key support for gross margins.

Target Prices Point Above NT$2,100, Valuation Remains Attractive Both investment banks significantly raised their target prices for TSMC, maintaining "Overweight" or "Buy" ratings.

J.P. Morgan: Raised its December 2026 target price substantially from NT$1,700 to NT$2,100. This valuation is based on a price-to-earnings (P/E) ratio of 20x estimated 2027 EPS. J.P. Morgan believes TSMC's recent strong performance will continue in the coming months. Nomura: Raised its target price from NT$1,855 to NT$2,135, based on 25x estimated 2026 EPS. Nomura noted that TSMC is currently trading at just 20x expected 2026 EPS, representing an unjustified discount of approximately 27% compared to the Philadelphia Semiconductor Index (SOX) P/E of 27x, making the valuation highly attractive.