Amidst rumors of price hikes, TSMC and Nvidia's stock prices are flying together.
On June 6th, TSMC's US stock market surged nearly 6%, reaching a new closing high. TSMC Radio's stock closed up 4.68%. Nvidia has also set a new high in stock prices with TSMC. On that day, Nvidia rose more than 5% to a new historical high, with a total market value exceeding $3 trillion, surpassing Apple. Lithography giant Asma also surged 9.5%.
On June 5th, TSMC held a board meeting and approved a capital budget of $17.356 billion to increase advanced process capacity. At the same time, the board of directors also announced the repurchase of 3.249 million shares of the company's stock, offsetting the dilution effect caused by the issuance of restricted employee rights new shares, with a repurchase price range of NT $598 to NT $1281 per share. TSMC stated that the repurchased stocks will be disposed of to protect shareholder rights.
In addition to TSMC's own actions, TSMC has also received assistance from "foreign aid" NVIDIA CEO Huang Renxun. At the investor luncheon at the Taipei Computer Show on the 5th, Morgan Stanley asked Huang Renxun how TSMC hoped to raise prices. Huang Renxun replied, "I think TSMC's prices are too low... TSMC's contribution to the world and the technology industry is unfair from the financial reports. NVIDIA has now become TSMC's second largest customer, accounting for 10% of TSMC's 2024 revenue.".
Huang Renxun also stated that he will support TSMC's quotation for wafers and CoWoS (TSMC's 2.5D/3D packaging technology).
Morgan Stanley also raised TSMC's target price from 928 yuan to 980 yuan in New Taiwan dollars, maintaining a "boost" rating and optimistic that TSMC will pass on the increased costs to customers.
Taiwanese media reported that the two sides will negotiate on next year's wafer prices, which is expected to further boost TSMC's revenue and gross profit margin levels.
Nvidia is a very important OEM customer of TSMC. Nvidia H and B series GPUs both use TSMC's 4-nanometer process. Huang Renxun emphasized that TSMC not only produces chips, but also handles many supply chain issues. He agrees that the current quotation is too low and will support TSMC's price increase action.
However, if TSMC increases its quotation, it will have a relatively negative impact on large technology companies that adopt TSMC's contract manufacturing. According to Taiwanese media reports, semiconductor companies have reported that Nvidia's gross profit margin reached 78.36% in its most recent quarter financial report, far exceeding AMD's 46.78% in the same industry, and 25 percentage points higher than TSMC's 53.07% in the first quarter. If TSMC's advanced manufacturing process increases the OEM price, Nvidia's gross profit will not be affected, but it will dilute the gross profit margin for other companies that are operating in TSMC's advanced manufacturing process, including Apple, AMD, and Qualcomm.
In addition to advanced manufacturing processes, packaging technology is also very important in the production of AI chips, and can even be said to be the key to victory.
Last year, TSMC's advanced packaging production capacity was tight, and ODM and OEM manufacturers were waiting for supply. Although there was some relief in the first quarter of this year, it still could not meet market demand. TSMC has also confirmed that there is a strong demand, and the process expansion from 5 nanometers to 3 nanometers is not enough to meet the demand. It is bound to further increase production capacity.
The industry predicts that by the end of this year, TSMC's CoWoS monthly production capacity is expected to reach 45000 to 50000 pieces, while SoICs can reach the level of 5000 to 6000 pieces.
Morgan Stanley pointed out that TSMC needs to raise wafer prices in order to maintain gross profit margins above its target of 53% in 2025 and 2026. Morgan Stanley predicts that the average selling price (ASP) of 3-nanometer wafers will increase by 11%, the price of 4-nanometer wafers will rise by 3%, and the price of CoWoS may increase by 20%.
Barclays analysts are optimistic that the pace of the upcoming 2-nanometer application will be faster than expected. Barclays believes that the leadership position of semiconductor applications has shifted from smartphones to data centers, and "strong demand for 2 nanometers is a big advantage for TSMC.". Barclays has raised its TSMC ADR target stock price from $150 to $170, maintaining an "overweight" rating.