Morgan Stanley upped on Monday their price target for Taiwan Semiconductor (TSM) stock, growing demand for AI semiconductors after Apple’s (AAPL) recently unveiled AI strategy.
The new price target for TSMC is set at NT$1,080, which represents around 17% potential upside from the current levels. Morgan Stanley analysts said the adjustment reflects the anticipated higher demand for Apple (NASDAQ:AAPL)'s AI chips in cloud servers and edge devices, such as iPhones.
In the near term, TSMC could face margin pressures in the second half of 2024 due to the dilution of margins from Apple's 3nm wafer. Moreover, there is a potential for a month-over-month sales decline in June as non-AI demand remains weak.
Despite these challenges, Morgan Stanley sees a positive outlook for Apple Silicon demand starting in 2025, in line with Apple's plans to introduce server-based language models that will operate on Apple silicon servers.
Apple's announcement at its 2024 Worldwide Developers Conference (WWDC) of 'Apple Intelligence' Foundation Models confirmed Morgan Stanley's earlier supply chain analysis. The M2 Ultra chips, produced by TSMC using 4nm technology, are expected to generate approximately $2 billion in revenue in 2024, accounting for around 2% of TSMC's total revenue.
“Given the expanding user base for Private Cloud Compute, we expect Apple to use the 3nm Apple Silicon M3 or M4 to produce more AI server chips in 2025,” analysts said in a note.
“And in 2026, Apple may adopt TSMC’s 2nm and SoIC technology for a more powerful Apple Silicon chip in AI servers,” they added.
The upcoming iPhone 16 Pro is expected to feature an enhanced A18 Pro processor to support Edge AI computing. The processor, which may be 15-20% larger than the A18, aims to incorporate additional graphics and AI computing units. Any 15% increase in semiconductor content within iPhone processors could result in a 3% revenue boost for TSMC, given that iPhone processors comprise 20% of TSMC's revenue, Morgan Stanley noted.