TSMC's Strategic U.S. Expansion and Tariff Relief: A Win-Win for Investors?

The global semiconductor landscape is undergoing a seismic shift, driven by U.S. industrial policy and geopolitical realignments. At the center of this transformation is TSMC, the world's largest contract chipmaker, whose $165 billion U.S. expansion-anchored by the CHIPS and Science Act and U.S.-Taiwan trade negotiations-has positioned it to capitalize on a confluence of fiscal incentives, tariff relief, and surging demand for AI-driven chips. For investors, the question is whether this strategic pivot translates into sustainable earnings growth and long-term value creation.

The CHIPS Act: A Catalyst for Cost Reduction and Margin Expansion

The CHIPS and Science Act, enacted in 2022, has been a cornerstone of TSMC's U.S. strategy. The legislation provides $39 billion in direct funding for semiconductor manufacturing, alongside a 25% Advanced Manufacturing Investment Tax Credit (AMITC) for equipment investments. By January 2027, TSMC must begin construction on its Arizona-based advanced fabrication plants to qualify for these incentives, which significantly reduce the financial burden of onshoring operations. As of July 2025, the U.S. Department of Commerce has already awarded $33.7 billion in direct funding and $5.5 billion in loans under CHIPS Act programs, with TSMC securing $6.565 billion for its Arizona cluster.

These subsidies are not merely symbolic. They directly lower TSMC's capital expenditures and operating costs, enabling the company to maintain high margins even as it ramps up production. For instance, TSMC's Q3 2025 gross margin expanded to 59.5%, while operating margin hit 50.6%, driven by strong AI demand and cost efficiencies from CHIPS Act-linked projects. Analysts note that the 35% tax credit for U.S. expansion by 2026-part of the same legislative framework-could further amplify profitability by reducing effective tax rates.

Tariff Relief and Geopolitical Hedging: A Dual Advantage

Beyond the CHIPS Act, TSMC benefits from a proposed U.S.-Taiwan trade deal that would lower U.S. tariffs on Taiwanese goods in exchange for $300 billion in Taiwanese investments, including TSMC's U.S. projects. This tariff relief is critical for mitigating the risks posed by Trump's delayed 100% semiconductor tariff, which, while aimed at boosting domestic production, could disrupt global supply chains and alienate China. TSMC's exemption from this proposed tariff-granted by the Trump administration-positions it uniquely to outcompete rivals like Samsung and Intel, which face higher costs under the same regime.

This geopolitical hedging is already paying dividends. TSMC's Q2 2025 revenue hit a record $30.07 billion, with AI-related business surpassing $10 billion for the first time. The company's CEO has affirmed that customer behavior remains stable despite tariff uncertainties, allowing it to maintain a full-year revenue growth target of "close to mid-20s percent."

Long-Term Earnings Potential: AI Demand and Pricing Power

The long-term earnings story for TSMC hinges on two pillars: AI-driven demand and pricing power. Analysts project AI-related revenues to grow to $26 billion in 2026 and $33 billion in 2027, fueled by advanced packaging technologies like CoWoS and rising demand from clients such as Nvidia, Amazon, and Google. Bernstein Research forecasts a 66% increase in CoWoS capacity by late 2026, with production fully booked through 2027.

Pricing power is another tailwind. TSMC plans to raise prices for its 2nm and 3nm process nodes by 10%–20%, leveraging its technological leadership and the CHIPS Act's cost-reduction benefits. HSBC analyst Frank Lee recently raised his 2026 EPS forecast for TSMC to NT$84.92 from NT$81.45, citing "sustained demand for AI/HPC chips and favorable tax incentives."

Risks and Considerations

While the outlook is bullish, investors should remain cautious. The delayed 100% tariff could still materialize, potentially disrupting supply chains. Additionally, TSMC's U.S. expansion carries near-term margin dilution risks, with overseas fab ramp-ups expected to reduce gross margins by 1%–2% in 2025. However, these risks are largely offset by the CHIPS Act's long-term incentives and TSMC's dominant market position.

Conclusion: A Strategic Win-Win

TSMC's U.S. expansion, underpinned by the CHIPS Act and tariff relief, represents a strategic alignment of policy and market forces. For investors, the combination of cost reductions, margin resilience, and AI-driven demand creates a compelling case for long-term growth. While geopolitical uncertainties persist, TSMC's unique positioning-coupled with its technological edge and favorable regulatory treatment-suggests that this is indeed a win-win scenario.