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Investment bank Morgan Stanley has listed the most significant risks to TSMC in the case of a joint venture with Intel. Ahead of Intel's new CEO Lip-Bu Tan taking over earlier this month, rumors and reports had claimed that the Trump administration was eager to get the Taiwanese firm involved in Intel's revival to revitalize chip manufacturing in America. However, TSMC instead upped its US investment to $160 billion from an earlier $100 billion in a widely televised appearance with President Trump. Yet, Morgan Stanley believes that unless TSMC explicitly rules out participating in a joint venture, its shares will continue to perform below the bank's base case target of NT$1,388.
TSMC's Long Term Growth Could Be Limited By Intel Joint Venture, Says Morgan Stanley
In a fresh analyst note, Morgan Stanely reiterated its Outperform rating for TSMC's shares and a NT$1,388 price target for the stock that trades on Taiwanese markets. TSMC's shares closed at NT$952 in Taiwan today, and the investment bank believes three key factors are pulling the stock below the price target.
According to Morgan Stanley, these factors are TSMC's purported joint venture with Intel, the demand for AI products and potential tariffs against Taiwan by the Trump administration. Within these three, the largest weighing down is through the Intel joint venture. Morgan Stanley believes that TSMC has resolved packaging constraints in its AI supply chain.
These constraints were among the earliest that worried analysts, and the bank believes that AI demand should be robust this year. It adds that while lower AI demand is a risk to TSMC's share price, it isn't as serious as the joint venture since lower demand stands to affect the broader semiconductor industry instead of only TSMC.
For the tariffs, the bank believes that even if tariffs were levied on Taiwan's chip exports, the brunt of the costs will be borne by TSMC's customers. The tariff uncertainty will be resolved on April 2nd, which is President Trump's deadline for announcing his new measures.
As a result, the bank believes that a potential Intel joint venture is the biggest headwind to TSMC's share price since it is a firm-specific factor. Morgan Stanley believes that firstly, if TSMC does enter into a deal, then it might not be able to control operational and technical decisions for chip fabrication. The lack of control could affect TSMC's lead in its market, especially since different chip companies often follow vastly different manufacturing strategies and processes due to the highly complex nature of semiconductor fabrication.
Morgan Stanley adds that even if a TSMC-Intel joint venture is successful and Intel turns its loss into a profit, then TSMC could see its technological lead over the American company shrink. As a result, the bank argues that if TSMC's management explicitly denies a potential joint venture, then the firm's shares could rise toward the NT$1,388 share price target. It notes that the price rise is contingent on strong demand for AI products.
While Morgan Stanley continues to speculate about a joint venture, Intel CEO Lip-Bu Tan is focused on turning the firm's foundry business around. In multiple statements since taking over, Tan has asserted that he will focus on customer requirements to develop a world-class foundry at Intel.
