Bank of America: TSMC(TSM.US) shifts capital expenditures to "front-end tilt," preparing for 2nm mass production and AI chip demand in 2026

The Stock Exchange Financial APP has learned that Bank of America stated that TSMC’s (TSM.US) board recently approved a capital budget of up to $45 billion, showing a highly structured characteristic, with funds heavily concentrated in advanced front-end manufacturing processes and large-scale wafer plant infrastructure development. The bank’s analyst Haas Liu gave TSMC a “Buy” rating, with a target price of NT$2,360.

It is understood that the TSMC board announced two major decisions on Tuesday: first, approval of a quarterly dividend of NT$6.0 per share; second, a allocation of $45 billion for wafer plant construction, capacity installation, and technological upgrades, covering advanced front-end processes, specialty processes, mature nodes, and all advanced packaging technology chains. Additionally, the company simultaneously allocated an extra NT$1.2 billion to its Arizona subsidiary for support.

Liu believes that this shift in budget structure aligns closely with TSMC’s aggressive capital expenditure plan for 2026. According to forecasts, TSMC’s total capital expenditure in 2026 is expected to rise to between $52 billion and $56 billion, representing a significant increase of approximately 27% to 37% compared to 2025. This growth surge is particularly prominent on a quarterly basis, marking another peak in capital investment since the wave of expansion in CoWoS advanced packaging in the first half of 2024.

The report emphasizes that this “front-end bias” in resource allocation essentially prepares the way for the large-scale mass production of 2-nanometer (N2) and A16 E-m level processes, ensuring sufficient cleanroom space and capacity at critical technological iteration points.

Bank of America analyst Haas Liu wrote in a client report: “In terms of capital allocation, we find it noteworthy that the funds are directed toward advanced front-end manufacturing and facilities/cleanrooms. While quarterly approval amounts may fluctuate, the cumulative amount has shown significant year-over-year growth, marking the first such increase since the first half of 2024—when TSMC was preparing for large-scale CoWoS expansion and further capacity upgrades for 3nm following the industry downturn in 2023. This aligns with TSMC’s optimistic capital expenditure guidance for 2026, including new 3nm capacity, 2nm capacity upgrades, A16 technology readiness, and expansion of advanced packaging capacity and technology roadmap. We will monitor this trend based on supply chain feedback to see if it persists, which will serve as a basis for interpreting its capital expenditure outlook.”

From a deeper driving force perspective, the core motivation behind TSMC’s capital expansion is the insatiable demand for high-performance chips driven by artificial intelligence. Management has publicly stated multiple times that AI development exceeds expectations in its demand for advanced processes, prompting the company to accelerate the construction of ultra-large wafer fabs globally, including in Arizona.

By establishing extremely high capital and technological barriers in front-end manufacturing, TSMC aims to widen the gap with competitors like Samsung and Intel, and leverage capacity certainty to lock in long-term cooperation with key clients such as Nvidia, Apple, and major cloud service providers.

In summary, Bank of America maintains its “Buy” rating on TSMC, noting that the clear budget structure reflects the company’s strategic resilience in facing semiconductor cyclical fluctuations. As the 2nm technology roadmap progresses steadily, TSMC is transforming this saturated resource investment into an absolute market share advantage. This scale expansion will also support its profit growth expectations beyond 2026.

Additionally, TSMC announced on Tuesday that its January revenue increased by 37% year-over-year to NT$401.3 billion (approximately $12.7 billion), exceeding its full-year revenue growth forecast of 30%. However, due to the Lunar New Year holiday falling in January 2025, this figure may fluctuate compared to the same period last year.