Investing.com -- Analysts on Wall Street reiterated their bullish views on Taiwan Semiconductor (TSMC) shares after the latest Nvidia (NASDAQ:NVDA) earnings report.
Following the market close on Wednesday, Nvidia shares fell notably after its quarterly forecast failed to meet elevated investor expectations. The stock dropped over 6% after-hours, though those losses halved in Thursday’s premarket trading.
But despite this, analysts’ comments following the report were largely bullish, based on positive commentary from Nvidia’s management about demand.
“Hopper demand remains strong, and the anticipation for Blackwell is incredible,” Nvidia CEO Jensen Huang said during the call.
Unsurprisingly, analysts believe this outlook also bodes well for Taiwan Semiconductor Manufacturing (NYSE:TSM), the world’s largest chip manufacturer.
Huang assured investors that Nvidia will have "lots and lots of supply" in the fourth quarter, which should help address some of the current supply challenges. That aligns with TSMC’s earlier statement that their CoWoS capacity will double in 2024 and 2025.
According to Citi’s estimates, TSMC’s CoWoS capacity increased to 25kwpm by the end of Q2 2024, up from 10-15kwpm in Q1 2024. They project this capacity to reach 35kwpm by the end of the year, with a target of 70kwpm by late 2025.
“Considering its newly announced purchase of Innolux’s Fab in Tainan, we expect TSMC’s CoWoS capacity to further double in 2026 compared to 2025," Citi analysts said.
Moreover, Citi highlighted that, in addition to increasing Cloud Service Provider (CSP) investments in AI, enterprise AI demand is also on the rise.
As a result, the bank estimates that TSMC's AI compound annual growth rate (CAGR) will surpass the company’s guidance of 50%+. It also projects that AI will contribute over 20% of TSMC's revenue in 2024, significantly ahead of the company's earlier guidance of reaching this level by 2028.
In Q2 2024, high-performance computing, driven by AI, accounted for 52% of TSMC’s revenue, marking the first time it has contributed more than half.
“We expect Nvidia will continue to be the biggest contributor to TSMC’s AI business and will share over 50% of its CoWoS capacity allocation,” Citi analysts continued, maintaining a Buy rating on TSM stock.
Similarly, analysts at Bank of America (NYSE:BAC) also reiterated a Buy rating on TSMC, noting that the outlook aligns with their expectations.
Specifically, they pointed out that AI demand remains strong, CoWoS supply is increasing though still limited, and the Blackwell launch is on track for year-end.
“NVIDIA suggests abundant return on investment shifting from general-purpose to accelerated computing for the industry, and we see substantial benefits anticipated for TSMC, the go-to supplier of GPU/ASIC ICs and CoWoS packages to benefit significantly from NVIDIA’s robust growth," BofA noted.