The explosive growth in AI computing power demand is pushing TSMC's advanced process capacity to an unprecedented state of tension.According to &#34;Zhui Feng Trading Desk,&#34; JPMorgan Chase released a research report on April 2, 2026, raising TSMC's target price from NT$2,250 to NT$2,400, and expects TSMC's gross margin in the upcoming Q1 earnings report to reach 66.8%, higher than the company's own guidance of 63% to 65%.The core logic driving the upward revision is: Advanced process capacity, represented by the N3 process, has been booked until 2027, and the supply-demand imbalance has further intensified in the past two to three months.The strong growth in Agentic AI workloads is driving an exponential increase in computing power consumption, while demand for various products such as GPUs, CPUs, and AI interconnects is simultaneously rising, pushing TSMC's advanced process capacity utilization rates to consistently exceed 100%.This supply-demand landscape will support TSMC's gross margin to continue rising in the first half of 2026 and drive the company's cumulative capital expenditure to approximately $190 billion over the three years from 2026 to 2028.<h2>AI Computing Power Demand Surges, N3 Capacity Booked Until 2027</h2>In the past two to three months, AI computing power demand has seen a significant acceleration. The explosion of Agentic AI workloads—including the surge in token consumption driven by the launch of products like Claude Code, OpenClaw, and similar offerings from other AI labs—is the main driver of this demand exceeding expectations.Concurrently, the demand for server AI interconnect products (including network chips, DSPs, retimers, etc.) has increased in tandem with computing power expansion. Demand for server CPUs such as Google Axion, Nvidia Grace, AWS Graviton, and Microsoft Cobalt has also shown a marked recovery.Current wafer demand for advanced processes has tightened considerably, with N3 and N2 capacity already booked until 2027 for most HPC customers.Major AI accelerators like NVIDIA Rubin, AWS Trainium 3, and Meta MTIA are migrating to the N3 process in 2026. Coupled with the continued ramp-up of Google TPUs (Ironwood and v8 series) and AMD MI series, the N3 supply-demand imbalance is further exacerbated.Although TSMC is working to expand capacity by the end of 2026, N3 utilization rates are expected to remain above 120% in 2026 and above 110% in 2027. N3 revenue is projected to roughly double in 2026, accounting for over 30% of TSMC's total revenue, with HPC demand representing about two-thirds of total N3 demand.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4627325f-40b6-4ebb-b59c-73ae6b99a02a.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4627325f-40b6-4ebb-b59c-73ae6b99a02a.png"/>On the N2 front, Apple's entire iPhone lineup (A20/A20 Pro), AMD Venice and MI450, as well as flagship SoCs from MediaTek and Qualcomm are adopting the N2 process in 2026. N2 revenue is expected to grow from approximately 4% in 2026 to 15% and 26% in 2027/2028, respectively.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/09bbf250-bb09-41d5-ab2a-835b85911f40.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/09bbf250-bb09-41d5-ab2a-835b85911f40.png"/><h2>Active Expansion, Capital Expenditures Expected to Reach $190 Billion from 2026 to 2028</h2>TSMC's capital expenditure forecasts for 2027 and 2028 have been raised to $63.5 billion and $70.5 billion, respectively. Cumulative capital expenditure for the three years from 2026 to 2028 is expected to reach approximately $190 billion, nearly double the approximately $101 billion spent from 2023 to 2025.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/c48c5cb5-40e0-40e2-8e0f-b7834d162e4e.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/c48c5cb5-40e0-40e2-8e0f-b7834d162e4e.png"/>This massive expenditure reflects TSMC's strategic determination to fully support the expansion of AI computing power, driven by the high revenue growth of its clients and the exponential expansion of token usage. Capacity for advanced processes (N7 and below nodes) is expected to achieve a 16% compound annual growth rate between 2025 and 2028.Global capacity footprint is accelerating expansion in tandem:<blockquote>In Taiwan, TSMC is advancing N3 capacity expansion at Fab 18 P9 in Tainan, constructing N2 and A16 capacity at Fab 22 P1-P5 in Kaohsiung, and building Fab 20 P1-P4 in Baoshan.For long-term planning, Fab 25 in Taichung will house A14/A10 nodes, Fab 18 may add phases P10 to P12 (pending land approval), and Tainan has early plans for another eight-phase new fab targeting A10/A7 nodes.Overseas, the N3 mass production timeline for the second phase of Fab 21 in Arizona, USA, is expected to be brought forward to mid-2027, while the third phase for N2 capacity might commence from late 2028 to the first half of 2029. The second phase of Fab 23 in Kumamoto, Japan, is expected to start mass production in the second half of 2028.For advanced packaging, CoWoS capacity is projected to reach 115,000 and 145,000 wafers per month by the end of 2026/2027, respectively. SoIC will enter a phase of large-scale investment from 2027 to 2028. Several N2 accelerators, including NVIDIA Feynman, Google TPU v9, Trainium 4, and OpenAI Titan 2, are expected to utilize the SoIC architecture.</blockquote><img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4c19c725-1324-4869-9cbd-32de5db32af2.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4c19c725-1324-4869-9cbd-32de5db32af2.png"/><h2>Gross Margin Exceeds Expectations, Potentially Reaching a Historical High in the First Half</h2>TSMC's Q1 gross margin is expected to reach 66.8%, exceeding the upper limit of the company's guidance by about 180 basis points, and is expected to remain high at 66.4% in Q2, a jump of over 550 basis points from the second half of 2025.The report lists five factors supporting the better-than-expected gross margin:<blockquote>First, capacity utilization rates for N5 and N3 continue to exceed 100%;Second, cross-fab operations have improved the capacity utilization rates for N7 and 28nm, reducing idle equipment costs;Third, the increase in &#34;expedited&#34; and &#34;super-expedited&#34; wafer orders from HPC clients, which can command premiums of 50% to 100%;Fourth, the approximately 6% to 10% price increase for like-for-like products in advanced processes in 2026 has been fully implemented since January;Fifth, the NT dollar has depreciated against the US dollar by over 1.5% in the past two months. Every 1% depreciation can bring about a 0.4 percentage point increase in gross margin.</blockquote>It is conservatively estimated that the gross margin in the second half of 2026 will decline by about 400 basis points quarter-over-quarter, mainly reflecting the dilution effect of the N2 process yield ramp-up, the upfront amortization of overseas fabs (especially the rapid expansion of US fabs), and the potential impact of electricity price hikes.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/af381f0f-1b48-42e4-aafb-6c8ddec14628.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/af381f0f-1b48-42e4-aafb-6c8ddec14628.png"/><h2>Market Expectations Ahead of Earnings: Q1 Exceeds Expectations, Full-Year Guidance Unchanged</h2>TSMC's Q1 revenue is expected to increase by 7% quarter-over-quarter, exceeding the upper limit of the company's guidance range (3% to 6% QoQ growth, corresponding to $33.5 billion to $35.8 billion). Q2 guidance is expected to be 6% to 8% QoQ growth (estimated at 8%), with a gross margin guidance range of 64% to 66%.Despite the continuous positive demand trend, the report anticipates that TSMC will not adjust its full-year numerical guidance during this earnings call, and management is expected to maintain the following guidance unchanged:<blockquote>Full-year USD revenue growth of &#34;close to 30%&#34; (forecast at 35%);A five-year compound annual growth rate (CAGR) for AI revenue from 2024 to 2029 of &#34;mid-to-high 50%&#34;;And a long-term company USD revenue CAGR of approximately 25% from 2024 to 2029.</blockquote>It is expected that management will convey the following signals during the call:<blockquote>An increased optimistic outlook on AI demand;A more positive stance on the 2027-2028 capacity expansion plans;Emphasis on the strong demand from Apple's supply chain;Accelerated expansion progress for N3 and N2 processes in the US;And full confidence in competitive dynamics, including Tesla's TeraFab, and foundry businesses from Samsung and Intel.</blockquote>The report uses an approximate 20x 12-month forward P/E ratio as the valuation benchmark, corresponding to a target price of NT$2,400, which is higher than TSMC's five-year historical average P/E ratio, reflecting JPMorgan Chase's high recognition of its structural growth logic.

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AI computing power demand is soaring, with TSMC's N3, N2, and other advanced process capacity orders already booked until 2027. The company is actively expanding production, with capital expenditures expected to reach $190 billion from 2026 to 2028, and global capacity accelerating in tandem. JPMorgan Chase believes that driven by full capacity and expedited premiums, its Q1 gross margin is expected to exceed expectations, rising to 66.8%. TSMC will announce its Q1 earnings on April 16

- TSMC's advanced process capacity is under unprecedented strain due to explosive growth in AI computing power demand, with orders for N3 processes booked until 2027.  
- Morgan Stanley has raised TSMC's target price to NT$ 2,400, anticipating a gross margin of 66.8% for Q1, driven by strong HPC client orders and rising demand for related products.  
- The company plans to increase capital expenditures to approximately $190 billion from 2026 to 2028, reflecting its commitment to support AI capacity expansion amid an anticipated increase in revenue and operational growth.

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Ahead of TSMC's Earnings, JPMorgan Chase Urges: Buy! Company's Advanced Processes to Remain in Shortage Until 2027