TSMC: Raising Valuation by 45% on Potential Price Hike, and Incremental AI PC and Datacenter Demand

We raise our fair value estimate on Taiwan Semiconductor Manufacturing, or TSMC, to TWD 1,380 per share from TWD 950 (USD 213 per ADR from USD 146) owing to higher pricing expectations, stronger artificial intelligence demand, and plausible upward revision in its full-year revenue guidance. As a result, we increase our revenue and EPS expectations for 2024 to 2028 by up to 9% and 17%, respectively. In addition, we lowered our WACC to 8.2% from 9.3% as TSMC is closer to opening overseas plants to mitigate geopolitical risks in East Asia. Even after a 60% year-to-date share price rally, we view TSMC is undervalued as potential price hikes without much additional capital expenditure would disproportionately improve free cash flow.