TSMC 3nm Process to Raise Prices Again, Can It Drive Stock Price Higher?

TradingKey — During the Asian trading session on May 27, it was reported that TSMC ( TSM) plans to raise its 3nm process quotes again in the second half of the year, with a maximum increase of up to 15%, and a potential further hike of 5% to 10% next year.

This marks TSMC's second round of price increases for 2026 following the hike at the beginning of the year. TSMC's price adjustments signal that pricing power for advanced processes is becoming a strategic commanding height for the semiconductor industry in the AI era. Driven by this news, TSMC's U.S. shares rose by more than 1.5% in overnight trading.

What are the drivers behind the price increases?

The fundamental supply-demand imbalance is the direct driver of this round of price hikes.

With NVIDIA's Vera Rubin platform accelerating mass production and cloud giants like Google and AWS fully adopting customized 3nm AI chips, coupled with the continuous influx of AI accelerator orders from AMD and Broadcom, wafer demand for 3nm processes in the AI server sector is experiencing exponential growth.

TSMC's 3nm capacity remains at high utilization, yet the customer backlog shows no significant signs of easing; although monthly capacity increased from approximately 130,000 wafers at the start of the year to 160,000–175,000 in the second quarter, AI demand growth continues to far outpace market expectations, making the capacity gap difficult to close in the short term.

ASIC vendors noted that 3nm demand was previously primarily driven by smartphone SoCs, representing a singular structure; however, since the full onset of the AI server platform refresh cycle, the demand base has expanded to multiple cloud titans such as NVIDIA, AMD, Google, and AWS.

Despite TSMC's recent record capital expenditures aimed at meeting AI chip demand, CEO C.C. Wei admitted that supply shortages will persist until 2027 or potentially longer.

Competition in advanced processes has shifted from technological iteration to capacity scale and supply chain integration capabilities, areas where TSMC maintains a significant lead across all dimensions.

Boost in gross margin

The financial impact of price hikes has begun to manifest. In the first quarter of 2026, TSMC's gross margin hit a record 66.2% and its net margin climbed to 50.5%, though the strong performance in Q1 was largely driven by cost improvements and higher capacity utilization.

The dividends from the previous round of 3% to 10% price hikes have not yet been fully reflected in the gross margin. As the 15% increase in 3nm quotes is reflected month-by-month in the new quarter, TSMC's gross margin is expected to climb further into the 68% to 70% range in the second half of the year.

CFO Wendell Huang stated publicly that 3nm gross margins are expected to cross the corporate average in the second half of 2026. Overall, even with cost pressures from the initial 2nm yield ramp and overseas expansion, the structural gross margin improvement from price hikes will remain a core medium-term tailwind.

Will TSMC’s stock price continue to rise?

Following the release of its earnings report, several foreign institutions have significantly raised their target prices for TSMC.

UBS Securities has revised its target price for TSMC upward to NT$3,000, projecting that earnings per share (EPS) will grow from NT$98.86 this year to NT$243.45 by 2030. Goldman Sachs raised its target price from NT$1,720 to NT$2,330, upwardly revising its profit forecasts for 2026 to 2027 by 9% to 15%. BOC International further increased its target price to $560 (approximately NT$3,050), reiterating its "Buy" rating.

Supported by the triple factors of AI demand sustainability, capacity expansion progress, and pricing power, the upward trend in target price revisions by foreign institutions reflects that TSMC is currently in an expansionary cycle driven by both earnings and valuation.

Risk factors for investors to consider.

Yield rates during the initial stage of 2nm mass production remain in the ramp-up phase, and high R&D spending alongside depreciation pressure may pose a temporary drag on gross margins. Should 2nm progress fall short of expectations, the premium pricing structure of advanced nodes could face a revaluation.

The pace of new facility construction and geopolitical risks. Mass production at new overseas plants is concentrated in the second half of 2027 through 2028; uncertainties during the construction process, such as labor, equipment delivery, and alignment with local policies, may impact the production timeline.

The global competition for chip capacity expansion is also intensifying. If the supply gap for advanced processes is closed ahead of schedule, TSMC's bargaining power will be challenged, and gross margins may be squeezed as a result.

The trend of major customers diversifying their supply chains. Apple has, for the first time, awarded a portion of its proprietary chip foundry work to Intel; Tesla is collaborating with both TSMC and Samsung on next-generation AI chips while advancing the Terafab project with Intel. Although the short-term impact on TSMC's orders is limited, the long-term trend of supply chain diversification among customers represents a marginal variable that cannot be ignored.