Taiwan Semiconductor Projects AI Revenue To Double In 2025, Highlights Advanced Packaging As Growth Driver: Analyst

Needham analyst Charles Shi reiterated Taiwan Semiconductor Manufacturing Co TSM with a Buy and a $225 price target.

Taiwan Semiconductor guided 2025 revenue growth to be in the mid-20s percent range, primarily in line with consensus.

More interestingly, management guided AI revenue to double in 2025 after tripling in size and reaching the mid-teens percent of the overall revenue in 2024.

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Taiwan Semiconductor extended the AI forecast horizon to 2029 and guided to a mid-40% CAGR for AI revenue over the next five years. For the company overall, Taiwan Semiconductor management noted long-term revenue CAGR inching and approaching 20% (versus 15%-20% previously).

The numbers imply Taiwan Semiconductor’s expected non-AI revenue growth for 2025 will be in the low teens versus the high teens in 2024.

It does not necessarily mean Taiwan Semiconductor is calling for a deceleration of non-AI growth in 2025, and may merely reflect conservatism, it shows that management’s conviction on a stronger non-AI recovery in 2025 is not quite there.
Another number that management provided on the call also reveals the same trend.

Taiwan Semiconductor guided that “Foundry 2.0” TAM, which includes conventional foundry, advanced packaging, and testing, will grow by 10% in 2025 (versus 6% in 2024).

Since Taiwan Semiconductor accounts for roughly 34% of the Foundry 2.0 TAM (~$265 billion in 2024), its 25% growth in 2025 would imply roughly flattish growth for the rest of the Foundry 2.0 TAM, which is largely non-AI-related.

Taiwan Semiconductor guided 2025 CapEx to be $38 billion-$42 billion, significantly higher than the mid-$30 billion range Shi had thought due to Shi’s more cautious view on front-end equipment spending.

The ~$40 billion CapEx in 2025 translates to ~35% capital intensity (versus the analyst’s previously called low 30s percent intensity).

Taiwan Semiconductor said roughly 70% of the spending will be on advanced nodes, 10%-20% on specialty devices and 10%-20% on packaging, testing and photomask making.

Historically, the breakdown of CapEx has been 70%- 80% on advanced nodes, 10%- 20% on specialty devices and 10% on packaging, testing and photomask making.

While Taiwan Semiconductor did not provide the actual spending mix in the past, Shi noted guidance suggests that directionally, advanced node spending is trending down while back-end spending (packaging/testing) is trending up.

Shi added that advanced packaging related to CapEx will grow faster than overall CapEx.

It has been anticipated that as Moore’s Law slows, packaging will play a bigger role in extending the semiconductor roadmap. However, the better indicator is Taiwan Semiconductor’s forecast of packaging revenue.

Taiwan Semiconductor management said on the call that packaging revenue, which accounted for over 8% of the overall revenue in 2024, will account for over 10% of the overall revenue in 2025.

Shi noted that historically, Taiwan Semiconductor’s packaging revenue was about 7%- 8% of total revenue. The faster growth of packaging revenue should lead to more rapid development of packaging CapEx.

On the advanced node spending side, Taiwan Semiconductor confirmed that more 5nm to 3nm conversion is on the way in 2025 but also confirmed that the second fab in Arizona, which is built for 3nm and below, will start to take tools by the end of 2025.

Taiwan Semiconductor in the past said that the second fab in Arizona will enter mass production in 2028.

Tool move-in by the end of 2025 means the schedule should be pulled into 2027.

TSM Price Action: Taiwan Semiconductor stock is up 4.78% at $216.69 at publication Thursday.

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