---
endpoint: analytics
pattern: 06 · Bull · bear synthesis
status: done
latency_ms: 267612
conversation_id: 48319d8a-83f9-4285-8957-ec8309643592
citations: 9
created: 2026-05-31 17:16:52Z
---

# What's the bull case / bear case for TSMC?

# TSMC (2330 TT / TSM US) — Bull Case vs. Bear Case

TSMC sits at the structural intersection of (1) the AI capex super-cycle, (2) accelerating process-node migration, and (3) a re-globalising semi supply chain. The bull/bear debate is largely about how durable the AI demand curve is and how much margin TSMC sacrifices to satisfy customer + government geographic-diversification demands.

CLSA/CLST (CLSA's Taiwan affiliate; lead analyst Jason Tsang) covers TSMC primarily through Taiwan-semi sector notes. The most recent company guidance shown below comes from TSMC's own earnings call commentary.

---

## BULL CASE

### 1. AI demand has re-accelerated and the 5-year curve is being revised UP
- TSMC CEO C.C. Wei on Q1 2026 call: **"AI-related demand continued to be extremely robust. The shift from generative AI and the query mode to agentic AI and command and action mode is leading to another step-up in the amount of token being consumed"** [7].
- On Q4 2025 call, the company reiterated and tilted higher the **mid-to-high 50s % AI accelerator CAGR for 2024–2029** (vs. mid-40s previously guided in early 2025) [14].
- Wei said on Q4 2025 call demand "is more stronger than we thought three months ago... Today, the number are insane" (Q4 2025 EC).

### 2. Top-line guidance compounds at exceptional rates
- 2025 full-year USD revenue: guided to **+mid-30s % YoY** [9] (raised from +mid-20s in Q1 2025 [11]).
- 2026 full-year USD revenue: **+~30% YoY**, against a Foundry 2.0 industry forecast of +14% [9] — i.e., TSMC continues to grossly outgrow the industry it defines.

### 3. CapEx upside as a leading indicator of revenue
- 2026 CapEx guided to the **high end of $52–56B range**. CFO/CEO logic: *"the demand are very robust, especially from the HPC and AI applications... our supply is very tight. Demand is continue to increase"* [8].
- Management's mantra: **"a higher level of capital expenditures is always correlated with higher growth opportunities in the following years"** [10] — i.e., higher CapEx prints today are a Bayesian signal for higher revenue in 2027–28.

### 4. Process-node monopoly intact; competitors structurally disadvantaged
- 3nm runs at **100% utilization** through 2024 with strong demand for AI/HPC + smartphone migration; **strong demand for 3/4/5nm to persist into 2025** [4].
- Intel 18A entering mass production end-2025, but CLSA's view: **"Intel is unlikely to secure major clients which currently place orders at TSMC… these companies may be concerned that their confidential chip design data could be leaked to Intel if they utilise Intel's process technology"** [2]. Intel itself remains a TSMC 2nm customer (~15–20k wpm planned 2026) [2].
- CLSA's June 2025 advanced-nodes note: 2nm capacity ramping to 60k wpm by 4Q26, Apple and Bitmain anchoring the ramp; Nvidia Rubin moving to 3nm; **"demand for advanced nodes remains solid, supported by continued process node migration"** (607962511, CLSA 22 Jun 2025).
- Apple, Nvidia, AMD, MediaTek, Qualcomm, Broadcom and Intel all run leading-edge silicon at TSMC — there is no realistic 2nd-source for high-performance compute.

### 5. CoWoS / advanced packaging — the AI throughput bottleneck TSMC owns
- TSMC's CoWoS capacity scaling: **55–57k → 70/75k wpm by 3Q25/4Q25, then 100k wpm in 2H26**, driven by Nvidia (≈60% of CoWoS), AMD, Broadcom, Marvell [1]. The 2025 NVDA "CoWoS cut" rumour reflected TSMC over-reserving capacity rather than a demand cut (607952295, CLSA 5 Mar 2025).
- This is a moat: CoWoS-S/L/R are TSMC-developed; Amkor and ASE are second-tier; non-TSMC capacity is years behind.

### 6. Mix shift to higher-ASP nodes offsets dilution headwinds
- 3nm gross margin set to **cross corporate average in 2H 2026** (currently mid-60s %) (Q1 2026 EC).
- 2nm carries higher ASP than 3nm — even if Intel insources more PC CPU content, **"TSMC's 2nm node has higher ASP, this could enable TSMC to offset negative impacts from the decrease in supply proportion"** [2].

### 7. A14/A16 secure the next leg of leadership
- A14 (2028 volume production): **"10 to 15 speed improvement at the same power, or 25 to 30 power improvement at the same speed, and close to 20% chip density gain"** vs. N2 (Q1 2026 EC). Both smartphone and HPC engagement already flagged.

---

## BEAR CASE

### 1. AI capex digestion / CoWoS over-build risk
- CLSA flagged in May 2025: **"concerns among the supply chain about slower growth in Nvidia's CoWoS volume in 2026 due to potential inventory risks between upstream supply and downstream demand"** — B200 inventory needs meaningful reduction in 4Q25; downstream cashflow may struggle to absorb B300 inventory (607959699, CLSA 16 May 2025).
- Earlier (Jan 2025), CLSA cut KYEC EPS forecast 12% on Nvidia GB300A demand revision and CoWoS-S/CoWoS-L allocation reshuffle (607948074, CLSA 13 Jan 2025). The first read-through risk is that TSMC's >50% CoWoS exposure to Nvidia is more cyclical than the bull case allows.

### 2. Non-AI end markets remain weak; edge-AI not bailing them out
- CLSA's 2025 outlook: **"modest growth in end-demand in traditional consumer sectors, as we are cautious about the potential of edge AI to significantly boost shipments for the PC and smartphone markets"** [5]. Smartphone weakness is **already hitting TSMC's utilization rate** in mid-2025 per CLSA's June 2025 note.
- 7nm utilization only 60–65% in 2H24, recovering to 65–70% in 2H25 — i.e., trailing-edge slack persists [4].

### 3. Geographic-diversification mandate is a structural margin headwind
- Arizona ramp dilutes gross margin by **2–3% in early stages, widening to 3–4% later** as overseas fabs scale [13]. Add Kumamoto, Dresden and additional Arizona phases ($165B+ total committed) and the dilution stack is non-trivial through 2030.
- Customer price discussions are TSMC's defense — but those are negotiated, not guaranteed.

### 4. FX = a non-controllable margin pressure
- NT$ appreciated 4.4% sequentially in Q2 2025 then another **6.6% in Q3 2025, hitting Q3 gross margin by ~260bps**. Sensitivity: 1% NT$ appreciation = ~40bps of GM impact [12]. If the NT$ continues to grind higher with global USD weakness, reported NT-denominated revenue and margins compress mechanically.

### 5. Tariff / trade-policy risk on end-demand
- CLSA's April 2025 tariff scenario analysis: while foundries and OSATs face limited market-share loss risk (low US capacity, multi-year fab build cycles), **"end-demand to be a key concern if chip selling prices increase due to the additional tariff. We see server-related applications facing higher risk on demand fluctuations as the US accounts for over 40% of total server demand"** [3]. Servers, GPUs and ASICs are TSMC's highest-margin volume — so even if TSMC keeps share, the addressable demand may shrink.
- TSMC executives explicitly acknowledge on Q1 2026 call: **"we are very mindful of the impact of rising component prices, especially in consumer and price-sensitive end market segment"** [7].

### 6. Geopolitical / power / supply-chain tail risk
- Q1 2026 call discussed the **Middle East situation** prompting Taiwan government to secure LNG supply through May and pursue further diversification [15]. Wei publicly worried about **electricity availability in Taiwan** before expanding capacity (Q4 2025 EC). Cross-strait risk and US/China decoupling remain unhedgeable.

### 7. China mature-node competition pressures the full-corp mix
- CLSA: **"Chinese mature foundry players have achieved a high utilisation rate in 2H24, surpassing Taiwanese players whose utilisation rate was only around 70% in 3Q24… we anticipate the competition to persist in the coming years"** [6]. Direct hit is on UMC / Vanguard, but it also caps trailing-edge ASP discipline industry-wide and limits TSMC's mature-node pricing power.

### 8. Valuation requires execution
- CLSA Nov 2024 outlook framed it bluntly: **"The current valuations of Taiwan semiconductor names are quite high, and a further rally in share prices will require fundamental drivers"** [5]. The bull case is largely in the multiple; any AI growth disappointment compresses both EPS and the multiple simultaneously (gamma trade).

---

## SCORECARD

| Theme | Bull leg | Bear leg | Edge |
|---|---|---|---|
| AI demand | +mid-to-high 50s CAGR, raised again [14]; "demand is insane" Q4'25 EC | CoWoS inventory risk into 2026 (CLSA May'25) | Bull, but watch B200/B300 sell-through |
| Process leadership | 3nm @100% util [4]; 2nm + A14/A16 secure next decade | None credible | Bull |
| Pricing / margin | 3nm crossing corp GM in 2H 2026 (Q1 2026 EC); 2nm higher ASP [2] | Overseas dilution 2–4% [13]; NT$ -260bps GM [12] | Mixed — net neutral |
| Industry growth | TSMC +~30% 2026 vs. Foundry 2.0 +14% [9] | Non-AI mild recovery; smartphone weak | Bull |
| Tariffs / geo | Foundry share risk low [3] | Server end-demand at risk [3]; Middle East / power [15] | Bear (tail) |
| China comp. | Limited at advanced nodes | Mature-node pressure persists [6] | Bear (modest) |
| Valuation | Earnings beats supportive | Multiple compression if AI disappoints [5] | Bear (risk-asymmetric) |

---

## SYNTHESIS

The internal CLSA/CLST view and the company's own commentary triangulate to the same base case: **TSMC remains the highest-conviction structural beneficiary of the AI capex cycle**, with no credible foundry alternative at the leading edge, expanding CoWoS dominance, and an AI accelerator revenue stream now compounding at mid-to-high 50s % CAGR over 2024–2029 [14]. The legitimate bear case is not "TSMC loses share" — it is "AI demand digests + NT$/overseas-fab dilution + tariff-induced end-demand softness compress margins and multiples simultaneously." The first signal to watch for that scenario is **CoWoS order behavior into 2026** (per CLSA's May 2025 caution) and **server end-demand reaction to any chip-specific tariff** [3]. Until those break, the bull leg is empirically winning.

---

**Sources**

[1] Taiwan semiconductor (2025 outlook: yet to see full upcycle) — CLSA, 25 Nov 2024 (607945418LinqAlpha.PDF)
[2] Taiwan semiconductor (Advanced nodes update) — CLSA, 27 Apr 2025 (607957054LinqAlpha.PDF)
[3] Taiwan semiconductor (Tariff risks on semiconductors) — CLSA, 7 Apr 2025 (607955235LinqAlpha.PDF)
[4] Taiwan semiconductor (2025 outlook: yet to see full upcycle) — CLSA, 25 Nov 2024 — Figure 14 / NVDA AI GPU roadmap & 3nm utilisation (607945418LinqAlpha.PDF)
[5] Taiwan semiconductor (2025 outlook: yet to see full upcycle) — CLSA, 25 Nov 2024 — Valuations / AI driver section (607945418LinqAlpha.PDF)
[6] Taiwan semiconductor (2025 outlook: yet to see full upcycle) — CLSA, 25 Nov 2024 — Mature nodes / China competition (607945418LinqAlpha.PDF)
[7] TSMC Q1 2026 Earnings Call — 16 Apr 2026 (C.C. Wei prepared remarks)
[8] TSMC Q1 2026 Earnings Call — 16 Apr 2026 (Haas Liu / CapEx Q&A)
[9] TSMC Q4 2025 Earnings Call — 15 Jan 2026 (2026 outlook prepared remarks)
[10] TSMC Q3 2025 Earnings Call — 16 Oct 2025 (Huang CapEx commentary)
[11] TSMC Q1 2025 Earnings Call — Apr 2025 (full-year 2025 +mid-20s guidance)
[12] TSMC Q2 2025 Earnings Call — Jul 2025 (FX sensitivity)
[13] TSMC Q3 2025 Earnings Call — 16 Oct 2025 (overseas fab dilution)
[14] TSMC Q4 2025 Earnings Call — 15 Jan 2026 (AI accelerator CAGR)
[15] TSMC Q1 2026 Earnings Call — 16 Apr 2026 (Middle East / power / supply chain risk)

*Note on attribution*: CLSA's Taiwan-semi coverage is published by **CLST (CLSA's Taiwan affiliate)** under analyst Jason Tsang, not CLSA-parent. Where this note refers to "CLSA's view" on TSMC, the underlying author is CLST.

## Citations

- [7] **Taiwan Semiconductor Manufacturing Co., Ltd., Q1 2026 Earnings Call, 16-April-2026 2** · external
- [8] **Taiwan Semiconductor Manufacturing Co., Ltd., Q1 2026 Earnings Call, 16-April-2026 2** · external
- [9] **Taiwan Semiconductor Manufacturing Co., Ltd., Q4 2025 Earnings Call, 15-January-2026 1** · external
- [10] **Taiwan Semiconductor Manufacturing Co., Ltd., Q3 2025 Earnings Call, 16-October-2025 2** · external
- [11] **Q1 2025 Taiwan Semiconductor Manufacturing Company Limited** · external
- [12] **Q2 2025 Taiwan Semiconductor Manufacturing Company Limited** · external
- [13] **Taiwan Semiconductor Manufacturing Co., Ltd., Q3 2025 Earnings Call, 16-October-2025 2** · external
- [14] **Taiwan Semiconductor Manufacturing Co., Ltd., Q4 2025 Earnings Call, 15-January-2026 1** · external
- [15] **Taiwan Semiconductor Manufacturing Co., Ltd., Q1 2026 Earnings Call, 16-April-2026 2** · external

