Buy this massive AI stock into upcoming Q2 print: Morgan Stanley

Morgan Stanley recommends buying Taiwan Semiconductor (TSMC) ahead of its second-quarter earnings, anticipating the chipmaker will raise its full-year revenue guidance driven by robust AI demand. The bank highlights TSMC's preliminary Q2 revenue of NT$933 billion, which surpassed expectations, and projects 27% year-on-year revenue growth for 2025, supported by resilient utilization rates and customers pulling orders before a planned 2026 wafer price hike. Additionally, TSMC's significant U.S. investment footprint positions it favorably against potential semiconductor tariffs, with Morgan Stanley viewing its valuation as appealing and its upcoming earnings call as a key indicator for the broader semiconductor sector.

Analysis

Morgan Stanley has issued a strong buy recommendation for Taiwan Semiconductor (TSM) ahead of its second-quarter earnings on July 17, citing expectations of an upward revision to its full-year revenue guidance. This bullish outlook is underpinned by preliminary Q2 revenue of NT$933 billion, which represents a 16% quarter-on-quarter increase in USD terms and exceeds both company guidance and Morgan Stanley's own estimates. The primary driver is sustained, strong demand for AI semiconductors, which is effectively offsetting softness in the PC and smartphone markets. Notably, any order cuts for 3nm PC CPUs were reportedly backfilled by demand from crypto mining, indicating robust utilization. Furthermore, Morgan Stanley anticipates a 27% year-on-year revenue growth for 2025 is achievable, supported by customers pulling orders forward ahead of a planned wafer price hike in 2026. From a geopolitical risk perspective, TSMC's substantial US$165 billion investment in its U.S. fab is viewed as a key factor that could secure exemptions from potential semiconductor tariffs. The company's valuation is also considered attractive, trading at 17 times Morgan Stanley's 2026 earnings estimate, with a price target of NT$1,288 that implies a 17% upside.

Key Decisions for Investors

• Investors could consider establishing or adding to long positions in TSM ahead of the July 17 earnings report to capitalize on the high probability of an upward revision to full-year revenue guidance.
• Monitor the upcoming earnings call closely for management commentary on the sustainability of AI-driven demand, margin expansion, and the magnitude of order pull-ins ahead of the 2026 price hike.
• Recognize TSMC's role as a key bellwether; its results and outlook are positioned to be a significant catalyst for the broader semiconductor sector, for which Morgan Stanley has upgraded its view to 'Attractive'.
• Evaluate the current valuation, which at 17x estimated 2026 earnings is presented as an appealing entry point, especially given the firm's dominant market position and strong growth catalysts.