TSMC (TSM.US) receives bullish rating from Goldman Sachs ahead of earnings: Strong AI demand supports growth momentum through 2027, with nearly 40% upside potential for stock price

According to Zhitong Finance APP, semiconductor foundry giant TSMC (TSM.US) will announce its results for the third quarter of 2026 on October 15. Goldman Sachs recently released a research report pointing out that TSMC's strong growth momentum is expected to extend through 2027, with capital expenditure gradually increasing to support long-term demand. Goldman Sachs reiterated its “Buy” rating for TSMC, raising its target price for TSMC shares listed in Taiwan from TWD 3,100 to TWD 3,300, representing nearly 28% upside from last Friday’s closing price; for TSMC's U.S. shares, the target price was raised to $660, nearly 40% higher than last Friday’s close.

Q3 and Q4 Revenue to Maintain Strong Sequential Growth; N2 Expansion Profit Dilution Limited

Supported by continuous robust demand for artificial intelligence (AI) and high-performance computing (HPC), TSMC’s third quarter revenue is expected to increase by 15.3% sequentially, followed by a further sequential increase of 11.0% in the fourth quarter of 2026 (both in USD). In terms of profitability, Goldman Sachs expects TSMC's gross margin for Q3/Q4 2026 to dip slightly to 67.5%/67.3%, down from 67.7% in Q2 2026, reflecting the dilution effect of continued N2 expansion.

Broader AI Demand Drives Momentum into 2027

Goldman Sachs anticipates that as demand for AI GPU/AI ASICs, networking equipment, and server CPUs continues to rise, TSMC will achieve a strong finish in 2026 and sustain its momentum into 2027. Notably, stronger CPU demand driven by agentic AI has emerged as a key change over the past year. The bank forecasts that TSMC’s revenue in 2026 will grow by 42.0% year-on-year in USD terms, followed by 36.9% in 2027, higher than the previously estimated 32.0%.

At Goldman Sachs’ Communacopia + Technology Conference, TSMC management emphasized that lower token costs should further spur AI usage. At the same time, discussions with clients and U.S. cloud service providers (CSPs) further reinforced Goldman’s confidence in both demand and infrastructure readiness. The bank believes these trends will support continued strong demand for advanced processes, especially in N2 and N3 nodes. Despite TSMC expanding capacity, management still expects supply for these nodes to remain tight.

On the supply side, Goldman Sachs expects increases in new capacity, conversion from N5 to N3 capacity, and production efficiency improvements to boost wafer output, while continued CoWoS capacity expansion will support related wafer shipments. The bank forecasts that gross margin will moderately improve to 67.5% in 2027, up from 67.2% in 2026, mainly supported by higher pricing, a favorable product mix, persistently high utilization rates, and ongoing production efficiency gains.

Earnings Per Share Forecasts Adjusted

Goldman Sachs raised its EPS projections for TSMC for 2026/2027/2028 by 1%/7%/8%, due to: 1) the anticipated gross margin dilution from N2 expansion being lower than previously expected, thus adjusting up gross margin assumptions; and 2) stronger AI/HPC demand, especially for N2/N3 nodes, leading to higher utilization rate (UTR) assumptions.

Increased Capex to Support Long-Term Expansion

Goldman Sachs expects TSMC to further ramp up capacity investment to meet customers’ long-term needs. The bank maintains its forecast for TSMC’s 2026 capital expenditure at $64 billion, while raising its 2027/2028 capex forecast to $85 billion/$98 billion respectively, up from the previous $78 billion/$82 billion, to account for: 1) cost inflation from equipment suppliers; and 2) initial outlays for a potential new Texas expansion project. However, the bank expects the new facility to enter mass production only after 2032.

In terms of capacity, Goldman Sachs continues to expect N3/N2 capacity to reach 200k wpm/140k wpm by the end of 2027, and 220k wpm/200k wpm by the end of 2028.

Other Key Focus Areas

TSMC management will host an earnings call on the same day as the third-quarter results release. Goldman Sachs highlighted several focal points for analysts.

Long-term AI growth outlook. Goldman Sachs believes that AI demand further extending from accelerators to CPUs and networking equipment will further support TSMC’s long-term growth. The bank hopes management will provide updated key assumptions for AI prospects leading up to 2030, including which demand drivers have seen the biggest surge over the past year and which factors might materially change this outlook.

Long-term capex outlook and U.S. expansion. As customer demand continues to drive investment in advanced node and advanced packaging, Goldman Sachs hopes management will elaborate more on the trajectory of long-term capital spending and the demand visibility that supports these investment decisions. The bank also hopes for updates on whether customer demand could lead TSMC to further expand its U.S. presence beyond the existing Arizona site, as well as possible timing and scale for such investments.

Foundry competition and technical leadership. Goldman Sachs expressed interest in management’s views on the evolving competitive landscape, including Intel, Samsung, and Terafab, and how these changes may affect TSMC’s long-term market positioning. In particular, the bank wants to further understand TSMC’s edge in technological leadership and whether management expects this gap to widen or narrow in coming process generations.

Summary

Goldman Sachs stated it is optimistic on TSMC, believing that as the world’s leading foundry, TSMC’s strong technological leadership and execution capabilities position it better than peers to seize long-term structural growth opportunities in sectors such as AI, 5G, HPC, and electric vehicles (EVs).

Goldman Sachs believes that TSMC will achieve a 25% revenue CAGR over the coming years and maintain a long-term gross margin above 56%. The bank also notes that TSMC’s valuation is attractive, with current share price situated around the midpoint of its 10-year trading history.