TSMC: Morgan Stanley hikes PT on Arm AI CPU boost

Investing.com-- Morgan Stanley analysts hiked their price target on Taiwan Semiconductor Manufacturing Co (TW:2330) (NYSE:TSM) (TSMC), citing improved prospects for the world’s biggest contract chipmaker from artificial intelligence-geared processors based on Arm technology. 

TSMC’s price target was raised to T$928.0 from T$860.0, while Morgan Stanley analysts also maintained their overweight rating on the stock. The updated PT represents an upside of 16% from TSMC’s last close of T$800.

Morgan Stanley analysts said that increased demand for processors based on British chipmaker Arm Holdings' (NASDAQ:ARM) technology was expected to be an important growth driver for TSMC, given that the chipmaker makes almost 100% of all Arm-based processors. 

Demand for Arm-based processors is expected to pick up amid increasing adoption of AI, while TSMC’s CoWoS chip packaging technology is also expected to factor into advancements in AI chip development.

Morgan Stanley expects TSMC’s foundry share in global CPU markets will be close to 60% in 2028, up from 37% in 2023, and will also become a bigger revenue driver for the firm.

Increased development of in-house, AI-geared silicon by major tech firms- such as Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc (NASDAQ:GOOGL) and Apple Inc (NASDAQ:AAPL)- also factors into improved prospects for TSMC, given that foundry work for the chips will be outsourced to the Taiwanese firm. 

AI darling NVIDIA Corporation (NASDAQ:NVDA)- which is among TSMC's biggest customers- also develops its most advanced AI chips on Arm.

Increased demand for AI chips fueled stronger earnings from TSMC in the first quarter. But the chipmaker had also warned that AI demand may not be sufficient in offsetting a broader decline in chip demand, especially amid weaker global PC and smartphone sales.