Taiwan Semiconductor Manufacturing's (TSM +1.67%) shares are already up by over 40% in 2025, but several Wall Street analysts believe that the rally may not be over. The most bullish among them is Susquehanna analyst Mehdi Hosseini, who reiterated a buy rating and increased TSMC's price target from $300 to $400 ahead of its third-quarter earnings results. The analyst highlighted the critical role of TSMC's advanced process nodes and unmatched manufacturing scale in enabling advances in artificial intelligence (AI) compute.
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Here's why the target price seems plausible in 2026.
Strong AI demand trends
TSMC is experiencing accelerated demand for AI-optimized chips, with rising requests for foundry capacity not only from customers but also from customers' customers to support their businesses. The company expects AI accelerator demand to grow at a mid-40% compound annual growth rate through 2029 and believes actual demand could even exceed this forecast.
NYSE: TSM
Key Data Points
With token usage (a metric of AI computational power) across AI models increasing at an exponential pace within three months, the need for high-performance, energy-efficient chips has also surged dramatically. That trend continues to benefit TSMC, as advanced nodes (7-nanometer and below) accounted for nearly 74% of its wafer revenues in the third quarter.
This demand is already translating into robust top-line and bottom-line growth. In the third quarter, TSMC's revenues soared 40.8% year over year to $33.1 billion, while earnings per share surged 49.8% year over year to $2.91.
Future catalysts
TSMC is also focused on expanding its chip-on-wafer-on-substrate (CoWoS) packaging capacity, which is used to integrate logic and high-bandwidth memory on AI accelerators. In fact, according to industry estimates, TSMC will exit calendar year 2026 with CoWoS capacity of 120,000 to 130,000 wafers per month, a dramatic improvement from the current CoWoS capacity of 75,000 to 80,000 wafers per month.
TSMC expects volume production of its N2P (extension of 2-nanometer family) and A16 technologies to commence in 2026, which could trigger another multiyear upgrade cycle in data centers, smartphones, and AI accelerators.
Considering all of these factors, TSMC seems well positioned to see meaningful share price growth in the coming year.
