Morningstar: TSM.US stated “no food left on the table”, signaling increased investment in AI chips

The Zhitong Finance App learned that TSM.US (TSM.US) declined slightly before the US stock market on Friday. Despite the company's recently announced strong third-quarter results, the stock price fell 6.9% this week, or the biggest weekly decline since July. However, Morningstar still believes that TSMC's fair value is $534, and there is still room for an increase of about 26.5% from Thursday's closing price.

Morningstar analyst Phelix Lee said that TSMC's outlook reflects the continued demand for advanced semiconductors and the company's room to expand production capacity. He pointed out that TSMC executives stated that “they have no intention of leaving food on the table for others,” which means that the company may increase investment to meet more demand.

Morningstar: TSMC is “underestimated” AI demand to support long-term prospects

Morningstar believes that TSMC is “undervalued” and that continued AI demand and investment in advanced manufacturing will support its long-term prospects. The agency said the fair value estimate of $534 reflects its view that TSMC can both benefit from increased demand and expand the production capacity needed to serve customers.

However, market sentiment has cooled. TSMC fell 0.6% in pre-market trading for US stocks. Retail sentiment on the Stocktwits platform declined from “extremely bullish” to “bullish” over the past day, but the discussion went from “high” to “extremely high.” According to platform data, the number of messages increased by more than 200% in the past week.

Barclays analyst Simon Coles raised TSMC's price target from $665 to $670, which means nearly 60% potential upside. The analyst maintained TSMC's “gain” rating and raised the 2026 revenue guidance, citing increased demand and strong customer roadmap visibility.

TSMC's production capacity is expected to drastically increase capital expenditure or reach 98 billion US dollars

Morningstar said that TSMC has confirmed discussions with Tesla (TSLA.US) on the Terafab chip manufacturing project. Analysts pointed out that any arrangement would require TSMC to operate the relevant fab. TSMC is also evaluating potential expansion in Texas, but no agreement has been reached.

Morningstar said the proposed Texas project has not yet been included in the forecast. However, the agency estimates that if the project can reach the size of Tesla's proposed Terafab plant, TSMC's effective production capacity will triple. The report points out that further expanding the US market will also help TSMC shorten delivery times and strengthen cooperation with the semiconductor industry in Texas. Morningstar estimates that this potential project will further expand the scale of investment based on TSMC's already promised US investment of 265 billion US dollars.

According to Lee, TSMC maintained its 2026 capital expenditure outlook after the third quarter results, but hinted that spending could accelerate thereafter. Morningstar estimates that as TSMC expands production of 2- and 1.4-nanometer chips, the 2028 capital expenditure could reach US$98 billion, an increase of 53% over the 2026 estimate. The agency indicated that Lasertec and Tokyo Electronics could be potential beneficiaries of TSMC's investment in additional manufacturing capacity.

Morningstar also said that TSMC's revenue guidance for the fourth quarter was about 7 billion US dollars higher than its previous forecast, reflecting an accelerated decline in 2nm production and advanced packaging production capacity. Lee adjusted his 2026 forecast to reflect the latest guidance, but left his long-term estimates unchanged while awaiting more clear signals that supply chain restrictions will ease.