Citigroup has raised its target price for Taiwan Semiconductor Manufacturing Co. to NT$2,800 from NT$2,600 and maintained a "buy" recommendation after revising up its earnings forecasts through 2028 on the back of strengthening AI-led demand for advanced chips.
The revised target represents a 53.8% potential upside from TSMC's March 27 closing price of NT$1,820. When dividends are included, Citi's target equates to a 55.3% total expected return.
Citi's updated earnings-per-share estimates for 2027 and 2028 are NT$130.72 and NT$165.99, respectively, which the firm notes are 18% and 28% above Bloomberg consensus. The research team projects a steep rise in TSMC's net profit - from NT$1.72 trillion in 2025 to NT$2.43 trillion in 2026, NT$3.39 trillion in 2027, and NT$4.30 trillion in 2028 - reflecting year-on-year growth of 41.5% in 2026, 39.5% in 2027, and 27% in 2028.
Revenue is forecast to climb to NT$5.12 trillion in 2026, NT$6.95 trillion in 2027, and NT$8.66 trillion in 2028. Citi's revenue projections run 2.2%, 12% and 17.7% ahead of consensus for those years.
On profitability, Citi expects gross margins to expand to 63.7% in 2026, 64.7% in 2027, and 65.6% in 2028. Those margin estimates compare with consensus figures of 63.2%, 62.7% and 61.8% for the same years, according to Citi.
Capital spending assumptions have also been revised higher. Against TSMC's own 2026 capex guidance of US$52-56 billion, Citi now models US$67 billion in 2027 and US$75 billion or more in 2028. The firm had previously expected US$60 billion for 2027. Citi says it will keep capex intensity around 30% of revenue in its projections.
Citi's capacity outlook points to rapid expansion of leading-edge nodes. The research note forecasts N3 and N2 capacity growth of 30-40% and over 100% year-on-year in 2027, respectively, with both N2 and A16 capacity expected to double again in 2028. The N2 node is projected to represent 29% of TSMC revenue in 2027, up from 15% in 2026 - which Citi says would make N2 the company's largest-ever revenue contributor.
"We thus expect N2 will become the biggest node and revenue contributor at TSMC ever, with accent demand and solid order visibility at least into next three years," Citi Research commented in its note.
Citi named Nvidia as the expected first A16 customer, using the node for a Feynman GPU in 2028, and forecast that Google and AWS AI chips will migrate to N2 beginning in late 2027.
AI-related revenue at TSMC is projected to grow by more than 100% year-on-year into 2027, Citi said. On the packaging front, CoWoS capacity is modeled to increase from 1.3 million wafers in 2026 to 2 million wafers in 2027, and COUPE co-packaged optics are expected to ramp in volume during 2028.
On geopolitical and supply concerns, Citi said near-term energy supply issues tied to Middle East tensions appeared manageable and were not included in the firm's production disruption assumptions.
Overall, Citi's revisions reflect a materially more bullish view on TSMC's revenue, profitability and investment profile through 2028, driven in large part by accelerating demand for AI compute and the expansion of next-generation process and packaging capacity.