Taiwan Semiconductor: Nvidia’s Collaboration with Intel Has Minimal Impact on Long-Term Outlook

Key Morningstar Metrics for Taiwan Semiconductor Manufacturing

• Fair Value Estimate: $306.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

The share price of Taiwan Semiconductor Manufacturing TSM has been steady amid Intel INTC and Nvidia’s NVDA plan to co-develop multiple generations of custom data center and PC products. Nvidia will acquire $5 billion of Intel’s common stock at $23.28 per share.

Why it matters: Nvidia has not committed to shifting massive portions of its chip production to Intel Foundry from TSMC. Given the lack of a timeframe for Intel and Nvidia’s plan, we believe there’s minimal impact on TSMC 2-nanometer and A16 outlook.

• Although Intel has raised $15.9 billion since Lip-Bu Tan became CEO in March, TSMC still has larger scale to keep unit development costs low. The funds raised pale in comparison to TSMC’s $40 billion annual capital expenditure budget.

The bottom line: We maintain our $306 per share fair value estimate for TSMC. The company remains our top pick given its quasi monopoly on advanced chips. We expect that a broader clientele in artificial intelligence will also limit the downside of Nvidia using Intel Foundry more.

Between the lines: Nvidia’s stake may be useful for Intel to complete intellectual property development with Synopsys. The IP blocks are useful for customers designing products for Intel’s 14A node.

• However, Nvidia seems to be testing the waters at Intel as it retains the option to mass-produce next-generation products using TSMC’s A14 node. Separately, Qualcomm’s CEO Cristiano Amon mentioned that Intel has yet to roll out suitable nodes for them, which we see as reassurance of TSMC’s outlook.