TSMC Earnings: Possible Upside Surprise in Long-Term Outlook as Artificial Intelligence Becomes Hot

We maintain our fair value estimate on Taiwan Semiconductor Manufacturing, or TSMC, at TWD 850 per share (USD 139 per ADR at current exchange rates) as the effects of our lower 2023-27 revenue and 2023 capital expenditure forecasts offset each other. We believe TSMC remains undervalued as it is a significant beneficiary in high performance computing, or HPC, with upside surprise potential from generative artificial intelligence, or AI. While its first-quarter revenue and second-quarter guidance trailed our expectations, we see limited share price downside as inventory correction is priced in, but confidence in its long-term outlook has been renewed by its resilient capital spending budget.