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Taiwan Semi Stock Is Rising. An Analyst Sees More Demand From Intel and Apple.

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Morgan Stanley analyst Charlie Chan upgraded Taiwan Semiconductor to Overweight from Equal Weight.
I-Hwa Cheng/Bloomberg

Taiwan Semiconductor Manufacturing shares are trading higher Monday, getting a boost from Morgan Stanley analyst Charlie Chan, who lifted his rating on the contract-chip-manufacturing giant to Overweight from Equal Weight, seeing a “a very positive longer-term outlook.”

Chan cautions that in 2022, “a semi downcycle is emerging,” pointing to moderating consumer demand for personal computers, smartphones and televisions. He also sees “growing risk” of a slowdown in chips used in crypto mining given recent price volatility in cryptocurrency prices.

But Chan sees those issues as transitory. He estimates that Taiwan Semiconductor (ticker: TSM) will spend a collective $140 billion on new process technology over the 2019-2023 period, extending its lead over rivals, and giving Taiwan Semi “a near monopoly” on cutting-edge chipmaking technology. He thinks the company will have nearly 100% market share for chips produced at 3-nanometer linewidths.

And he sees important new sources of demand emerging. He says that Intel (INTC) is likely to boost outsourcing for microprocessor production to 20% of its total needs in 2024, relying on output from Taiwan Semi. And he sees additional demand from Apple ‘s (AAPL) ongoing move into chip design, in particular in-house development of modem chips for the iPhone. He also sees growing demand from Sony (SONY) for image sensors. Overall, Chan thinks Taiwan Semi can hit $100 billion in revenue in 2024, up from $75.6 billion in 2021.

“TSMC is the best-quality stock in our coverage given its strong financials and technology leadership,” the analyst concludes. “The stock is now trading at 21 times 2022 and 18 times 2023 earnings, on our estimates—attractive in view of its structural growth.”

American depositary receipts of Taiwan Semi are up 1.2%, to $122.47.

Write to Eric J. Savitz at eric.savitz@barrons.com

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