TSMC: Upward revisions on ASIC CPU; Outperform with 67% implied upside

「ASIC CPUs」 make demand even higher. These in-house CPUs from Amazon & Google add on top of the CPUs from Intel & AMD and bring more demand for TSMC. We expect CPU revenue to double from US$24B this year to US$50B in 2028, with increasing contribution from ASIC CPUs. Better demand for N3, N2 & A14. PC & low-end smartphone demand are still trending lower, limiting the upside to N7 & N5. N3 & N2 are used by XPUs, CPUs & high-end smartphone SoCs & enjoy demand upticks. A14 is expected to follow N2 & begin revenue contribution in 2028, with revenue dollars surpassing N2 & all prior nodes at the same stage. We now predict US$77B capex in 2027. This is slightly above our prior forecast to reflect better demand outlook, but we still maintain capex/revenue ratio will fall. CoWoS capacity is nudged up slightly too, also on better demand. And we still expect OSATs & EMIB-T to bring more incremental CoWoS-equivalent capacity going forward. On 20x 1-year forward P/E, we raise price target to NT$38