JPMorgan Chase released a research report maintaining Taiwan Semiconductor Manufacturing's (TSM.US) "Overweight" rating, raising its Taiwan stock price target for June 2026 from NT$1,275 to NT$1,550, while also increasing 2025-2026 earnings per share expectations and 2026 revenue growth forecasts. JPMorgan noted that positive factors including robust data center AI demand growth, advanced process (N2/N3) capacity expansion, and sustained high gross margins will serve as core drivers supporting Taiwan Semiconductor Manufacturing's performance growth.

JPMorgan expects Taiwan Semiconductor Manufacturing's USD-denominated revenue to grow 24% in 2026, primarily driven by four key factors: First, strong N3 process demand, with abundant high-performance computing (HPC) accelerator orders (including GPU, TPU, and Tranium ASIC) from NVIDIA (NVDA.US), AMD (AMD.US), and other companies; Second, N2 process demand momentum, with all iPhone models' application processors adopting N2 process starting from the second half of 2026, while Qualcomm (QCOM.US) and MediaTek's new flagship SoCs will also contribute incremental demand; Third, advanced process ASP (average selling price) improvements, with N5, N4, N3, and other leading process ASPs expected to increase 6%-10%; Fourth, rapid growth in advanced packaging business, with CoWoS wafer shipments projected to grow 60% in 2026.

Additionally, the firm expects N7 capacity utilization to improve slightly in 2026 due to enhanced WiFi 7 and RF transceiver demand. JPMorgan emphasized that data center AI business has become Taiwan Semiconductor Manufacturing's core long-term growth engine. The firm raised Taiwan Semiconductor Manufacturing's 2024-2029 data center AI revenue compound annual growth rate (CAGR) expectation to 53% and anticipates that Taiwan Semiconductor Manufacturing may further increase its five-year data center AI revenue CAGR guidance from the current mid-40% range when releasing 2026 performance guidance in January 2026.

From a demand structure perspective, AI accelerators (GPUs and ASICs) remain the core driving force, expected to account for 68% of Taiwan Semiconductor Manufacturing's total data center AI demand by 2029. JPMorgan indicated that continued computing power demand from global major cloud service providers, emerging cloud companies, AI laboratories, and sovereign AI projects in 2026 will sustain high GPU demand levels, with most AI accelerators beginning migration from N4 to N3 processes starting in late 2025, further boosting N3 capacity utilization.

Network equipment and HBM (High Bandwidth Memory) base chip demand will also become significant incremental contributors. JPMorgan predicts Taiwan Semiconductor Manufacturing's AI network equipment revenue CAGR will reach 58% from 2024-2029. As GPU/AI cluster scales expand and Silicon Photonics and Co-Packaged Optics (CPO) technologies accelerate adoption, network equipment will account for 20% of data center AI demand in 2029 (versus 17% in 2025). Regarding HBM base chips, NVIDIA, AMD, and other companies will gradually adopt HBM4 configurations starting in 2026, with HBM base chip demand expected to grow significantly in 2027-28. Taiwan Semiconductor Manufacturing's HBM base chip revenue is projected to reach $12 billion in 2029, representing 12% of total data center AI revenue.

To address strong demand, JPMorgan expects Taiwan Semiconductor Manufacturing's 2026 capital expenditure to increase from the previous $45 billion to $48 billion, focusing on N2, N3 advanced process capacity and advanced packaging areas. Specifically, Taiwan Semiconductor Manufacturing's N2 process capacity will add approximately 50,000 wafers per month in 2026, with year-end production capacity reaching 65,000 wafers per month (lithography equivalent capacity of 100,000-105,000 wafers per month) to meet demand from Apple (AAPL.US), Qualcomm, and other customers. For N3 processes, Taiwan Semiconductor Manufacturing plans to convert some N4 capacity to N3 capacity while potentially accelerating the third phase of N3 capacity construction at its Arizona facility to address better-than-expected AI accelerator demand.

Overall, benefiting from better-than-expected Apple and AI data center demand, along with semiconductor tariff exemptions, JPMorgan currently expects Taiwan Semiconductor Manufacturing's Q4 2025 revenue to remain flat quarter-over-quarter (versus previous implied guidance of 9% decline), with fiscal 2025 USD revenue growth reaching 35%. The firm also believes that supported by improved capacity utilization and New Taiwan Dollar weakening, Taiwan Semiconductor Manufacturing's Q4 gross margin may maintain the high level of 50%. JPMorgan expects Taiwan Semiconductor Manufacturing's 2026 gross margin to remain at the high level of 50%, with main supporting factors including stable New Taiwan Dollar exchange rates, lower-than-expected US facility capacity dilution, advanced process price increases, and continued strong leading process demand. Even with 25% depreciation cost growth in 2026, robust AI demand and price increases will still ensure gross margin stability.