TSMC Stock Soars on Strong Demand but Faces Capacity Challenges

TSMC's stock reached another record high, climbing to NT$2,580, up 3.2%, as investors anticipate sustained demand from major customers like Apple and Nvidia. The company's market value surged to NT$66.9 trillion, driven by reports that key clients have increased orders for 2-nanometre chips by 10% to 20%. TSMC is accelerating capacity expansion to meet this demand, but the move requires significant investment in costly 2nm production and overseas fabrication plants.

TSMC plans to produce roughly 120,000 2nm wafers per month by the end of 2026, exceeding earlier estimates of 90,000 to 100,000. The company is bringing five 2nm fabs online this year, including two in Hsinchu and three in Kaohsiung. While the shortage benefits pricing, meeting these orders will strain TSMC's resources and economics. Persistent shortages could frustrate customers and encourage them to seek alternatives from competitors like Samsung or Intel.

Analysts remain optimistic, with JPMorgan maintaining a Buy rating and raising its price target to NT$3,300. However, challenges lie ahead, including potential margin dilution due to the 2nm ramp and overseas expansion costs. TSMC expects gross margins to shrink by three to four percentage points in the second half of 2026, while overseas fabrication could reduce margins by two to three points initially, widening later.

Morningstar anticipates TSMC will raise prices in 2027 to offset higher costs, justifying the company's increased capital-expenditure program. The scarcity of leading-edge capacity strengthens TSMC's ability to charge premium prices to customers like Nvidia and Apple. Investors will focus on 2027 capex, 2nm economics, AI demand, and pricing when TSMC reports its third-quarter earnings on October 15.