Hyperscalers' AI Spending Surge Raises Market Concerns
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 1h ago
0mins
Should l Buy TSM?
Source: Fool
- Spending Plans Overview: Alphabet plans to increase its AI spending from $91 billion in 2025 to $180 billion by 2026, while Microsoft reported $37.5 billion in Q2 2023, up from $34.9 billion in Q1, and Amazon aims to raise its spending to $200 billion in 2026, indicating a strong commitment to AI investments.
- TSMC's Market Outlook: Taiwan Semiconductor Manufacturing Company (TSMC) expects its capital expenditures to rise from $41 billion in 2025 to $54 billion, with management highlighting increased capacity to meet demand during the Q4 earnings call, leading to positive market sentiment regarding its potential benefits from the AI spending surge.
- Nvidia's Growth Potential: As a leading GPU provider, Nvidia's cloud products are sold out, and it anticipates AI spending could reach $3 to $4 trillion over the next decade, with management asserting that the company is still in the early stages of AI development and will continue to launch more powerful products to maintain its competitive edge.
- Applied Digital's Successful Pivot: Applied Digital has shifted from crypto-mining to AI infrastructure, securing a $5 billion long-term contract over 15 years, and despite currently being unprofitable, it reported a 250% year-over-year sales increase in Q2 2026, indicating strong market demand and positioning for future growth.
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Analyst Views on TSM
Wall Street analysts forecast TSM stock price to fall over the next 12 months. According to Wall Street analysts, the average 1-year price target for TSM is 313.46 USD with a low forecast of 63.24 USD and a high forecast of 390.00 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
8 Analyst Rating
7 Buy
1 Hold
0 Sell
Strong Buy
Current: 374.090
Low
63.24
Averages
313.46
High
390.00
Current: 374.090
Low
63.24
Averages
313.46
High
390.00
About TSM
Taiwan Semiconductor Manufacturing Co Ltd is a Taiwan-based integrated circuit foundry service provider. The Company is primarily engaged in integrated circuit manufacturing services. It offers advanced process technologies, specialised process solutions, advanced photomask and silicon stacking, and packaging-related technologies, while supporting a comprehensive design ecosystem. The Company's products serve diverse electronic sectors including artificial intelligence, high-performance computing, wired and wireless communications, automotive and industrial equipment, personal computing, information applications, consumer electronics, smart internet of things, and wearable devices.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
TSMC: The Leader in AI Chip Market
- Market Share Growth: TSMC currently accounts for nearly 75% of global chip manufacturing revenue, playing a crucial role in AI chip production, and is expected to further solidify its market position as big tech continues to invest in AI.
- Future Investment Outlook: Global data center investments are projected to approach $7 trillion by 2030, with TSMC benefiting as a primary chip supplier, driving an estimated 25% annual earnings growth in the future.
- Stock Performance: Despite a 65% increase in stock price over the past year, TSMC's price-to-earnings ratio remains below 25, indicating its investment value in the rapidly growing AI market, attracting investor interest.
- Competitive Advantage: TSMC's dominant position in AI chip production allows it to maintain an edge over competitors, making it unlikely for other foundries to displace it, with expectations of continued new highs in the coming year.
See More
Taiwan Semiconductor's Capital Budgeting Focuses on Front-End Technology
- Capital Budget Focus: Bank of America analyst Haas Liu noted that Taiwan Semiconductor's capital budgeting is skewed towards advanced front-end manufacturing and facility upgrades, indicating a strong commitment to future technology developments, particularly in 3nm and 2nm expansions.
- Quarterly Dividend Approval: On Tuesday, Taiwan Semiconductor approved a quarterly dividend of NT$6.0 per share and allocated $45 billion for fab construction and upgrades in advanced front-end and specialty technologies, demonstrating the company's ongoing investment in capacity and technological advancement.
- Significant Revenue Growth: Taiwan Semiconductor reported a 37% year-over-year revenue increase in January, reflecting its critical role in the AI boom and further solidifying its position as a key foundry supplier.
- Positive Future Outlook: Bank of America maintains a Buy rating with a price target of NT$2,360, indicating market optimism regarding the company's future capital expenditures and technological advancements, especially in AI and advanced packaging sectors.
See More
AI Infrastructure Market Continues to Boom with Key Investment Opportunities
- Broadcom's Market Leadership: Broadcom (AVGO) is a leader in data center networking, with its Tomahawk Ethernet switch being a key solution in AI data centers, expected to benefit from rapid expansion in AI infrastructure, driving growth over the next decade.
- Demand for Custom AI Chips: The $21 billion order for tensor processing units (TPUs) developed in partnership with Alphabet highlights Broadcom's strong demand in the custom AI chip market, further solidifying its critical role in AI infrastructure.
- TSMC's Industry Advantage: Taiwan Semiconductor Manufacturing (TSM) holds a near-monopoly as the world's leading chip manufacturer, poised to benefit significantly from the growing demand for both GPUs and AI ASICs as AI infrastructure builds out.
- Price Increases and Margin Growth: TSMC has informed customers of a four-year price hike schedule, and combined with its capacity expansion strategy, this is expected to enhance its gross margin of 59.02%, ensuring long-term competitiveness in the AI infrastructure sector.
See More
Hyperscalers' AI Spending Surge Raises Market Concerns
- Spending Plans Overview: Alphabet plans to increase its AI spending from $91 billion in 2025 to $180 billion by 2026, while Microsoft reported $37.5 billion in Q2 2023, up from $34.9 billion in Q1, and Amazon aims to raise its spending to $200 billion in 2026, indicating a strong commitment to AI investments.
- TSMC's Market Outlook: Taiwan Semiconductor Manufacturing Company (TSMC) expects its capital expenditures to rise from $41 billion in 2025 to $54 billion, with management highlighting increased capacity to meet demand during the Q4 earnings call, leading to positive market sentiment regarding its potential benefits from the AI spending surge.
- Nvidia's Growth Potential: As a leading GPU provider, Nvidia's cloud products are sold out, and it anticipates AI spending could reach $3 to $4 trillion over the next decade, with management asserting that the company is still in the early stages of AI development and will continue to launch more powerful products to maintain its competitive edge.
- Applied Digital's Successful Pivot: Applied Digital has shifted from crypto-mining to AI infrastructure, securing a $5 billion long-term contract over 15 years, and despite currently being unprofitable, it reported a 250% year-over-year sales increase in Q2 2026, indicating strong market demand and positioning for future growth.
See More
AI Drives Exponential Growth in Capital Expenditure
- Surge in Capital Expenditure: Top hyperscalers are expected to increase capital expenditures by 70% this year, with Amazon, Alphabet, Meta, and Microsoft planning a combined spending of over $600 billion, indicating a strong commitment to AI infrastructure investment.
- Mixed Market Reactions: Despite the significant increase in capital spending, Amazon and Microsoft's shares have dropped 12% and 16% respectively, while Alphabet's stock is down less than 1% and Meta's has risen by 1%, reflecting investor concerns about the timing of returns on these investments.
- Infrastructure Investment Opportunities: With spending accelerating, investors are drawn to
See More
Why TSMC is Outperforming Nvidia
- Market Performance Comparison: Over the past six months, Nvidia's stock has risen only 3%, while TSMC's stock has surged over 43%, indicating differing market expectations and confidence in the two companies.
- Revenue Growth Expectations: TSMC anticipates a nearly 30% revenue increase in 2026, reaching $159 billion, driven by higher prices for its advanced chip nodes and increased production capacity, potentially elevating its market cap to $2.4 trillion.
- Industry Dependency: As a fabless semiconductor manufacturer, Nvidia relies on TSMC for chip production, while TSMC serves multiple companies, including Broadcom, AMD, and Qualcomm, solidifying its central role in the AI chip market.
- Valuation Discrepancy: Despite Nvidia's projected 52% revenue growth for fiscal 2027, its price-to-sales ratio stands at 24 times, significantly higher than TSMC's 15 times, suggesting that investors may find TSMC a more attractive value play.
See More
TSMC: The Leader in AI Chip Market
- Market Share Growth: TSMC currently accounts for nearly 75% of global chip manufacturing revenue, playing a crucial role in AI chip production, and is expected to further solidify its market position as big tech continues to invest in AI.
- Future Investment Outlook: Global data center investments are projected to approach $7 trillion by 2030, with TSMC benefiting as a primary chip supplier, driving an estimated 25% annual earnings growth in the future.
- Stock Performance: Despite a 65% increase in stock price over the past year, TSMC's price-to-earnings ratio remains below 25, indicating its investment value in the rapidly growing AI market, attracting investor interest.
- Competitive Advantage: TSMC's dominant position in AI chip production allows it to maintain an edge over competitors, making it unlikely for other foundries to displace it, with expectations of continued new highs in the coming year.
See More
Taiwan Semiconductor's Capital Budgeting Focuses on Front-End Technology
- Capital Budget Focus: Bank of America analyst Haas Liu noted that Taiwan Semiconductor's capital budgeting is skewed towards advanced front-end manufacturing and facility upgrades, indicating a strong commitment to future technology developments, particularly in 3nm and 2nm expansions.
- Quarterly Dividend Approval: On Tuesday, Taiwan Semiconductor approved a quarterly dividend of NT$6.0 per share and allocated $45 billion for fab construction and upgrades in advanced front-end and specialty technologies, demonstrating the company's ongoing investment in capacity and technological advancement.
- Significant Revenue Growth: Taiwan Semiconductor reported a 37% year-over-year revenue increase in January, reflecting its critical role in the AI boom and further solidifying its position as a key foundry supplier.
- Positive Future Outlook: Bank of America maintains a Buy rating with a price target of NT$2,360, indicating market optimism regarding the company's future capital expenditures and technological advancements, especially in AI and advanced packaging sectors.
See More
AI Infrastructure Market Continues to Boom with Key Investment Opportunities
- Broadcom's Market Leadership: Broadcom (AVGO) is a leader in data center networking, with its Tomahawk Ethernet switch being a key solution in AI data centers, expected to benefit from rapid expansion in AI infrastructure, driving growth over the next decade.
- Demand for Custom AI Chips: The $21 billion order for tensor processing units (TPUs) developed in partnership with Alphabet highlights Broadcom's strong demand in the custom AI chip market, further solidifying its critical role in AI infrastructure.
- TSMC's Industry Advantage: Taiwan Semiconductor Manufacturing (TSM) holds a near-monopoly as the world's leading chip manufacturer, poised to benefit significantly from the growing demand for both GPUs and AI ASICs as AI infrastructure builds out.
- Price Increases and Margin Growth: TSMC has informed customers of a four-year price hike schedule, and combined with its capacity expansion strategy, this is expected to enhance its gross margin of 59.02%, ensuring long-term competitiveness in the AI infrastructure sector.
See More
Hyperscalers' AI Spending Surge Raises Market Concerns
- Spending Plans Overview: Alphabet plans to increase its AI spending from $91 billion in 2025 to $180 billion by 2026, while Microsoft reported $37.5 billion in Q2 2023, up from $34.9 billion in Q1, and Amazon aims to raise its spending to $200 billion in 2026, indicating a strong commitment to AI investments.
- TSMC's Market Outlook: Taiwan Semiconductor Manufacturing Company (TSMC) expects its capital expenditures to rise from $41 billion in 2025 to $54 billion, with management highlighting increased capacity to meet demand during the Q4 earnings call, leading to positive market sentiment regarding its potential benefits from the AI spending surge.
- Nvidia's Growth Potential: As a leading GPU provider, Nvidia's cloud products are sold out, and it anticipates AI spending could reach $3 to $4 trillion over the next decade, with management asserting that the company is still in the early stages of AI development and will continue to launch more powerful products to maintain its competitive edge.
- Applied Digital's Successful Pivot: Applied Digital has shifted from crypto-mining to AI infrastructure, securing a $5 billion long-term contract over 15 years, and despite currently being unprofitable, it reported a 250% year-over-year sales increase in Q2 2026, indicating strong market demand and positioning for future growth.
See More
AI Drives Exponential Growth in Capital Expenditure
- Surge in Capital Expenditure: Top hyperscalers are expected to increase capital expenditures by 70% this year, with Amazon, Alphabet, Meta, and Microsoft planning a combined spending of over $600 billion, indicating a strong commitment to AI infrastructure investment.
- Mixed Market Reactions: Despite the significant increase in capital spending, Amazon and Microsoft's shares have dropped 12% and 16% respectively, while Alphabet's stock is down less than 1% and Meta's has risen by 1%, reflecting investor concerns about the timing of returns on these investments.
- Infrastructure Investment Opportunities: With spending accelerating, investors are drawn to
See More
Why TSMC is Outperforming Nvidia
- Market Performance Comparison: Over the past six months, Nvidia's stock has risen only 3%, while TSMC's stock has surged over 43%, indicating differing market expectations and confidence in the two companies.
- Revenue Growth Expectations: TSMC anticipates a nearly 30% revenue increase in 2026, reaching $159 billion, driven by higher prices for its advanced chip nodes and increased production capacity, potentially elevating its market cap to $2.4 trillion.
- Industry Dependency: As a fabless semiconductor manufacturer, Nvidia relies on TSMC for chip production, while TSMC serves multiple companies, including Broadcom, AMD, and Qualcomm, solidifying its central role in the AI chip market.
- Valuation Discrepancy: Despite Nvidia's projected 52% revenue growth for fiscal 2027, its price-to-sales ratio stands at 24 times, significantly higher than TSMC's 15 times, suggesting that investors may find TSMC a more attractive value play.
See More
