This information is presented for informational purposes only and does not constitute investment advice. The author does not hold any positions in the stocks mentioned.
TSMC Shares Decline as Market Reacts to Tariff Concerns
Investment banking giant Morgan Stanley has released a new investment advisory concerning Taiwan Semiconductor Manufacturing Company (TSMC).The firm experienced a notable dip, with its shares falling by 5.7% amid anxieties over potential tariffs imposed on its products imported into the United States. Despite this setback, Morgan Stanley has maintained a share price target of NT$1, 388 for TSMC. The bank indicates that although short-term performance may feel the pinch from tariffs, TSMC’s intrinsic strengths will likely enable it to secure a significant portion of global chip orders.
Long-Term Outlook Despite Tariff Impacts
According to a report from Taiwanese media, Morgan Stanley suggests that tariffs could have repercussions on TSMC’s future profitability and gross margin. With the stock’s recent closing down 5.7% on the Taiwanese exchange, analysts emphasize that TSMC’s performance is vulnerable to government decisions from both the U. S.and Taiwan in the near term.
TSMC’s Technological Edge in Chip Manufacturing
The bank’s analysts assert that TSMC’s advanced manufacturing capabilities will help mitigate the adverse effects of these tariffs over time. Notably, TSMC’s cutting-edge 3-nanometer manufacturing process is recognized as one of the most sophisticated in the world. Furthermore, TSMC consistently achieves stable production yields—a significant advantage over competitors like Samsung. High yield rates mean fewer defective chips, which in turn contributes to healthier profit margins.
Market Share and Growth Potential Amidst Uncertainty
Despite tariff pressures, TSMC is expected to maintain a robust market share in the advanced chip manufacturing sector. Morgan Stanley highlights that beyond advanced manufacturing processes, the company’s long-term growth is spurred by the insatiable demand for artificial intelligence technologies. Coupled with relatively low valuations, investor focus will likely shift towards TSMC’s profit margins.
Barriers to Entry for Rivals
Establishing mega foundries and pioneering the latest chip technologies require substantial investments over several decades. Such lengthy and costly processes create formidable barriers for new entrants attempting to compete with established players like TSMC.
Customer Dependency and Tarif Implications
An analyst at Morgan Stanley has noted that TSMC’s U. S.clientele will constitute roughly 60% to 70% of its revenue this year. Previous statements from TSMC’s management suggest that any tariff-related costs will primarily fall on customers rather than chip manufacturers. This potential adjustment in pricing could significantly alter demand dynamics within the technology sector.
Impact of Subsidy Changes on Profit Margins
A pressing issue is the potential cancellation of subsidies intended for TSMC’s advanced chip manufacturing facilities in the U. S.Morgan Stanley reveals that these subsidies contribute to only about 10% of TSMC’s capital expenditures in the United States, implying that even if they are revoked, any negative impact on TSMC’s profit margins would likely remain under 0.5%.This limited effect is primarily because TSMC’s depreciation expenses represent 40% to 50% of the company’s overall sales costs.
For further details, you can review the original analysis from Morgan Stanley here.
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