TSMC 3nm Process Faces Price Hikes Again, Can It Drive Stock Price Up?

Fundamental shifts in the supply-demand structure are the direct drivers of this current wave of price hikes.

The accelerated mass production of NVIDIA's Vera Rubin platform, combined with cloud giants like Google and AWS fully adopting 3nm custom AI chips, and the continuous influx of AI accelerator orders from AMD and Broadcom, has led to exponential growth in 3nm wafer demand within the AI server sector.

TSMC's 3nm capacity remains at high utilization, yet the customer backlog shows no significant signs of easing; although monthly capacity grew from approximately 130,000 wafers at the start of the year to between 160,000 and 175,000 in the second quarter, the surge in AI demand continues to far outpace market expectations, leaving the capacity gap difficult to bridge in the short term.

ASIC providers note that while 3nm demand was previously driven primarily by a single segment—smartphone SoCs—the full commencement of the AI server platform refresh cycle has expanded the demand base to include multiple cloud giants such as NVIDIA, AMD, Google, and AWS.

Despite TSMC's recent bet on AI chip demand through record capital expenditures, CEO C.C. Wei admitted that supply shortages will persist through 2027 or even longer.

Competition in advanced processes has shifted from technological iteration to capacity scale and supply chain integration capabilities, with TSMC maintaining a significant lead across all dimensions.

The financial impact of price hikes has begun to materialize. In the first quarter of 2026, TSMC's gross margin reached a record high of 66.2%, while its net margin climbed to 50.5%; however, the stellar performance in the first quarter was primarily driven by cost improvements and higher capacity utilization.

The benefits from the previous round of 3% to 10% price increases have not yet been fully reflected in the gross margin. As the 15% price hike for 3nm nodes is phased in month-by-month in the new quarter, TSMC's gross margin is expected to further climb to the 68% to 70% range in the second half of the year.

CFO Wendell Huang stated publicly that the 3nm gross margin is expected to surpass the corporate average in the second half of 2026. Overall, even with cost pressures from the initial 2nm yield ramp-up and overseas expansion, the structural margin expansion driven by price hikes remains a core mid-term tailwind.

Following the release of its earnings report, several foreign institutions have significantly raised their target prices for TSMC.

UBS Securities has revised its target price for TSMC upward to NT$3,000, projecting that earnings per share will grow from NT$98.86 this year to NT$243.45 by 2030. Goldman Sachs raised its target price from NT$2,330 to NT$2,600. BOCI further increased its target price to $560 (approximately NT$3,050), reiterating a "Buy" rating.

Supported by the trio of sustainable AI demand, capacity expansion progress, and pricing power, the upward trend in target price revisions by foreign institutions reflects that TSMC is currently in an expansion cycle driven by both earnings and valuation.

Yield rates are still in the ramp-up phase during the early stages of 2nm mass production, and high R&D investment and depreciation pressure could pose a temporary drag on gross margins. If 2nm progress falls short of expectations, the premium pricing structure for advanced processes may face a revaluation.

The pace of new plant construction and geopolitical risks. Mass production at overseas facilities is concentrated in the second half of 2027 through 2028; uncertainties during construction, such as labor, equipment delivery, and alignment with local policies, could impact production schedules.

The global chip capacity expansion race is also heating up. If the supply gap for advanced processes is closed ahead of schedule, TSMC's bargaining power will face challenges, and gross margins could be compressed.

The trend of major customers diversifying their supply chains. Apple has, for the first time, outsourced part of its proprietary chip foundry work to Intel; Tesla is collaborating with both TSMC and Samsung on next-generation AI chips while advancing the Terafab initiative with Intel. Although the short-term impact on TSMC's orders is limited, the long-term trend of supply chain diversification constitutes a marginal variable that cannot be ignored.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.