The report from Citi indicates that TSMC's (TSM.US) capital expenditure guidance of USD 52 billion to USD 56 billion this year is surprising. The bank believes the most likely reason is that the proportion of spending on new factory construction is higher than market expectations, leading to expenditures per node being at the upper limit of the historically estimated range. However, the amount of unfinished projects remains high, reflecting that the ramp-up of capacity is slower than expected, while spending on land and infrastructure for factories is also accelerating. The bank expects no significant changes in supply-demand balance in the next two years.
The bank believes that TSMC's pricing improvement and gross margin increase will lead to a 14% and 19% upward revision of its earnings per share forecasts for this year and next year, respectively, with the target price-to-earnings ratio approaching that of NVIDIA (NVDA.US), and the target price raised from NT$2,000 to NT$3,030