Goldman Sachs Predicts Strong Short-Term AI Demand for TSMC but Cautions on Long-Term Slowdown

This article does not constitute investment advice. The author currently holds no positions in any of the stocks mentioned.

The Robust Outlook for TSMC Amidst AI Demand

Goldman Sachs expresses a positive outlook for Taiwan Semiconductor Manufacturing Company (TSMC), anticipating a surge in demand driven by artificial intelligence (AI).The investment bank attributes this optimism to a reduction in challenges within the downstream supply chain, which is crucial for delivering final products. Since TSMC specializes in fabricating advanced AI processors, the efficiency of server manufacturers downstream is vital, and Goldman believes that improvements in server yields could ultimately stabilize TSMC’s chip order flow.

Despite this optimistic tone, Goldman Sachs warns that TSMC’s capital expenditures for 2026 might be lower than what the market is currently projecting. This cautious view arises from a potential deceleration in the adoption of the second wave of the 2-nanometer manufacturing process.

Maintaining a Positive Rating: Bank of America’s Analysis

The initial product offerings from TSMC’s advanced manufacturing technology primarily cater to lower-power applications, such as smartphones and personal computers. As TSMC enhances power consumption and yield efficiency through mass production processes, these chips will transition to more power-intensive applications, including High-Performance Computing (HPC).

Goldman Sachs indicates that anticipated delays in the deployment of the 2-nanometer process could influence TSMC’s operational forecasts for 2027 and 2028. They predict that TSMC will allocate around $40 billion for capital investments in 2026—significantly below the market consensus of $45 billion.

On a brighter note, Goldman highlights the current robust demand for AI chips, attributing improvements in downstream server racks’ yield to TSMC’s continued market strength. This enhanced performance suggests that TSMC could avoid a significant decrease in demand, which would have occurred if server manufacturers struggled to manage their existing inventories.

Despite geopolitical uncertainties that pose risks to TSMC’s operations, investor sentiment appears to be improving concerning AI sector slowdowns. For its 2-nanometer process, Goldman remains upbeat, indicating that strong demand from smartphones and PCs is likely to bolster TSMC’s revenue and profits in the upcoming year.

Collaborations Enhancing Market Position

Joining Goldman Sachs in this optimistic outlook, Bank of America (BofA) underscores TSMC’s strong partnerships, particularly with industry leaders like NVIDIA and Foxconn, within the AI supply chain. These collaborations bolster TSMC’s strategic position and contribute to a favorable share price target of NT$1, 250, along with a Buy rating for TSMC’s stock.

Goldman Sachs’ analysis stems from discussions with over 80 investors, which took place during roadshows across the US and Taiwan. Apart from TSMC, other firms poised to benefit from the AI boom include MediaTek, ASE Technology, and WinWay Technology. These companies engage in semiconductor packaging, testing, and integrated circuit testing interfaces, and stand to gain from increased TSMC orders driven by heightened downstream demand for AI chips.

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