New Street Research Bullish on TSMC’s Long-Term Growth Opportunity

Investment research firm New Street Research is urging investors to look past the current temporary weakness in Taiwan Semiconductor Manufacturing’s (TSMC) business and instead focus on the significant long-term growth potential of the company.

Analyst Pierre Ferragu has reiterated his Buy rating on TSMC’s Taiwan-traded shares (ticker: TSM) and maintained his price target of 700 Taiwan dollars. This represents a potential upside of approximately 34% from the current levels of TSMC’s U.S.-listed American depositary receipts.

Ferragu is confident in TSMC’s rebound, stating, “We expect TSMC’s revenue to strongly rebound next year and reach $100 billion in 2025. We derive comfort from a bottom-up perspective by analyzing how TSMC’s top customers, with whom we are well acquainted, will contribute to this growth.”

TSMC’s ADRs have already shown signs of improvement, rising by 1.1% to $87.32 in Friday’s trading.

Although TSMC lowered its financial guidance for the year in July, forecasting a 10% year-over-year decline in revenue, Ferragu remains optimistic about the future. TSMC currently dominates the market for manufacturing high-end chips.

Despite the projected decline in revenue to about $68 billion, which aligns with the company’s guidance, Ferragu expects a resurgence in revenue by 2025. This recovery can be attributed to improved demand for smartphones and PCs driven by reduced inventories. Additionally, TSMC will benefit from the data center market’s robust growth, fueled by demand from TSMC customers such as Nvidia (NVDA), Marvell Technology (MRVL), Broadcom (AVGO), and Advanced Micro Devices (AMD).

Ferragu concludes, “The predicted revenue drop in 2023 is a cyclical phenomenon. Our analysis supports the two-year revenue forecast and highlights TSMC’s strong secular growth outlook.”

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