Bernstein Interpretation: TSMC's Target Price Set at NT$2,780, Can CoWoS and N2 Take the Baton?

TL;DR

• TSMC's 2Q26 revenue was approximately NT$1.27 trillion, with June figures up 67.9% year-over-year, indicating that AI demand continues to materialize.
• Bernstein maintains a target price of NT$2,780, with its model betting that high capital expenditure will translate into more AI production capacity.
• The high valuation requires gross margins to keep pace; customers seeking second sources and geopolitical risks will continue to cap upside potential.

TSMC's second-quarter revenue was approximately NT$1.27 trillion, up about 12% quarter-over-quarter and about 36% year-over-year, landing within the company's previously provided USD revenue guidance range and near the upper-middle end. TSMC's monthly revenue report shows June revenue of NT$442.68 billion, up 6.2% month-over-month and 67.9% year-over-year.

This data continues to reinforce a central market thesis: demand for AI chips, advanced processes, and advanced packaging still outstrips supply. Bernstein recently maintained its Outperform rating for TSMC, setting a target price of NT$2,780. Compared to the July 13 closing price of NT$2,440 on the Taiwan stock exchange, this target price still offers upside, but investor attention is now shifting from quarterly revenue to production capacity, gross margins, and the ramp-up of the N2 process.

Bernstein has continuously raised its target price for TSMC

TSMC will hold its second-quarter earnings conference on July 16. With second-quarter revenue already disclosed, the suspense shifts to how management will update full-year demand, advanced packaging expansion, capital expenditure for 2026-2027, and whether the high intensity of investment will begin to pressure gross margins.

Second-quarter revenue near the upper-middle end of guidance, June up nearly 68% year-over-year

The second-quarter revenue of NT$1.27 trillion is the most direct figure in this report. The company had previously guided second-quarter USD revenue of $39.0 billion to $40.2 billion, based on an exchange rate assumption of 31.7. By this measure, second-quarter revenue of approximately $39.6 billion falls within the guidance range, near the upper-middle end.

June revenue of NT$442.68 billion continued to climb from May's NT$416.975 billion. Total revenue for the first half of the year reached NT$2.404 trillion, up 35.6% year-over-year. This indicates that orders for advanced processes and AI-related demand are still translating into actual revenue, rather than remaining merely as expectations in the capital markets.

Bar chart comparing 2Q26 revenue: actual NT$1.27 trillion, exceeding some market estimates and falling within the company's guidance range.

Profit margins represent another key metric. The source report estimates a second-quarter gross margin of about 65%, but TSMC's official guidance was 65.5% to 67.5%. Before the official earnings release, the safer characterization is that the market still expects TSMC to maintain high gross margins, but the final figure will depend on the July 16 report.

For a wafer foundry, whether gross margins can remain high depends on the proportion of advanced processes, capacity utilization, depreciation pressure, and customer bargaining power. TSMC's current advantage is that AI and high-performance computing demand continues to help it absorb higher capital expenditures.

$56 billion in capital expenditure to secure AI capacity

Whether TSMC's valuation can hold up doesn't just depend on how much second-quarter revenue exceeded expectations, but also on whether it can convert AI demand into deliverable production capacity.

Bernstein's model projects TSMC's 2026 capital expenditure at $56 billion, rising further to $68 billion in 2027. This scale reflects two layers of pressure: demand for advanced processes continues to increase, and advanced packaging capacity remains a bottleneck for AI chip delivery.

Under the source report's methodology, CoWoS capacity is expected to reach 135,000 wafers per month by the end of 2026 and 195,000 wafers per month by the end of 2027. For Nvidia, AMD, and large cloud providers developing their own AI chips, advanced packaging capacity directly impacts whether chips can be delivered on time. After wafer manufacturing is complete, if the packaging step lags behind, final shipments will still be constrained.

This is why the market will closely watch TSMC's capital expenditure guidance. High capital expenditure, on one hand, indicates strong demand, but on the other, it brings increased depreciation and cash flow pressure. As long as customers are willing to lock in capacity and prices for advanced processes can be maintained, high investment constitutes growth investment. If AI demand slows, high investment will conversely squeeze profit margins.

The N2 process will also be a focal point of the earnings conference. TSMC's leadership in advanced processes remains its primary moat distinguishing it from other foundries. The market needs confirmation on whether the N2 ramp-up is progressing as planned, whether customer adoption is smooth, and whether the cost pressures of the new process can be offset by pricing and scale.

The NT$2,780 target price is not low; the stock price has already priced in AI

As of July 13, 2026, TSMC's closing price on the Taiwan stock exchange was NT$2,440. The target price of NT$2,780 given by Bernstein, based on approximately 20 times forward P/E, still represents some upside potential.

However, this is no longer a low-valuation turnaround story. Under the source report's methodology, the current stock price corresponds to a forward P/E of about 21 times. The market has already paid a high price for AI demand, advanced process leadership, and high gross margins.

TSMC's stock price has been steadily rising over the past year, currently around NT$2,440, with a TTM relative performance of 86.5%.

The stock's future performance will depend more on fundamental delivery. As long as revenue, gross margins, and capacity expansion continue to beat expectations, the high valuation can be digested by earnings growth. Once capital expenditure continues to rise but profit margins begin to loosen, investor tolerance for the current valuation will decrease.

Over the past 12 months, TSMC's relative performance has reached 86.5%. The market has already positioned it as one of the core beneficiaries of the AI infrastructure expansion. The more "core" an asset is, the more it can face valuation pressure when expectations cool even slightly.

Second sourcing heats up, but TSMC remains irreplaceable for now

The competitive risk for TSMC is currently not that its leadership is being challenged, but that customers, facing tight capacity, are beginning to explore more options.

Samsung was recently reported to have raised prices for some new customers on 4/5nm and 8nm nodes by about 15%, and is discussing 2nm AI chip projects with Anthropic and Meta. Intel is also being watched by the market for its potential involvement in Google TPU supply, but current discussions point more towards advanced packaging or EMIB links, which cannot be simply equated to wafer foundry orders.

These developments are unlikely to have a material impact on TSMC's revenue in the short term. TSMC still holds clear advantages in leading process yields, scale, and customer base. The real signal is that when the supply of advanced processes and advanced packaging remains tight for an extended period, major customers will more actively seek second supply sources.

Even if alternative solutions have limited short-term capacity and long technology verification cycles, they could, in the medium to long term, weaken TSMC's pricing flexibility. Geopolitical uncertainties and customer concerns about over-concentrated supply will also sustain the demand for diversification.

For TSMC at its current valuation level, these risks don't need to immediately impact revenue. As long as they affect the valuation multiple investors are willing to assign, they are sufficient to cause stock price volatility. The questions that the July 16 earnings conference needs to answer are also very specific: how fast must advanced packaging be expanded, will the N2 ramp-up drag on gross margins, and can high capital expenditure continue to be absorbed by AI orders. TSMC remains one of the strongest companies in the AI manufacturing chain, but for the NT$2,780 target price to be realized, it needs more data on production capacity and profit margins to keep pace.