According to a recent report submitted by the investment bank, Morgan Stanley, the Taiwan Semiconductor Manufacturing Company (TSMC) received a downgrade rating for its capital expenditure for the coming years. As we know, that TSMC plans to invest $100 billion over the next three years due to its plans of aggressively developing leading-edge chip manufacturing process nodes.
In their report, Morgan Stanley has cut TSMC’s share price to NT$ 580 from NT$ 655 and downgraded the stock’s rating to Neutral. There are several reasons explained for this downgrade, first is that the fab is now on track to produce its latest 3nm chip node next year and is currently supplying tech giants such as Apple Inc.
However, TSMC is also planning to customize its chip process nodes, since it’s now planning to take on the king of silicon valley, Intel. but, Morgan Stanley indicates that as TSMC will grow faster than the chip sector, the market has overestimated this growth rate. Instead, analysts believe that extensive capital spending will harm TSMC’s gross margins.
For the first quarter of this year, the margin stood at 52.4% in the first quarter of this year, and TSMC’s revenues grew by 16.7% the quarter, and its production costs are growing at 15.2%. however, due to the ongoing pandemic, the demand for consumer electronics grew. This resulted in more demand for TSMC’s products, and many analysts worry that in the fourth quarter the chip demand might drop following the aforementioned aggressive growth.