US-China Tech War Escalates: Taiwan Semiconductor Stock (TSM) in the Crossfire

As the US-China tech war intensifies, Taiwan Semiconductor Manufacturing Company (TSM) finds itself squarely in the crossfire. The world's largest contract chipmaker is grappling with escalating geopolitical tensions that threaten its production, sales, and long-term growth. This article explores the impact of the US' export control policy on TSM, its strategic moves to mitigate geopolitical risks, and the potential long-term effects on its revenue and market share.

The US' export control policy has significantly impacted TSM's production and sales to Chinese customers. Washington's latest move to demand TSMC halt shipments of advanced chips to the Chinese mainland has put the company in a difficult position. TSMC's revenue from mainland companies has already been nearly halved since the US started cracking down on chip exports to the mainland, falling from 20% in 2019 to 12% last year. The company's decision to comply with US demands, driven by a desire to prove its reliability and avoid being targeted as unreliable or uncooperative, will further strain its relationship with Chinese customers.



TSM's expansion into the US and Europe is a strategic move to mitigate geopolitical risks. By investing in Arizona and planning to build a fab in Europe, TSM diversifies its production base, reducing dependence on Taiwan. This diversification can help insulate TSM from potential disruptions in Taiwan, such as a blockade or invasion by China. Additionally, operating in the US and Europe allows TSM to be closer to its major customers, reducing logistical risks and enhancing supply chain resilience.

However, the increasing demand for AI chips presents a significant tailwind for TSM. As the world's largest contract chipmaker, TSM accounts for 36% of Taiwan's index weighting, and its 2-nanometer technology puts it ahead of China by at least a decade. Despite geopolitical risks, TSM's strong technological leadership and strategic investments in the US position it well to capitalize on the AI chip boom.

The potential reunification of Taiwan and China poses significant geopolitical risks for TSM. China's military exercises and air incursions around Taiwan have raised concerns about potential disruptions to TSM's operations. A blockade or unification attempt could severely impact the global technology industry, including TSM. Moreover, presidential candidate Donald Trump's comments suggesting Taiwan should pay for U.S. protection and criticizing its semiconductor industry have added uncertainty.

In conclusion, the escalating US-China tech war is set to significantly impact TSM's supply chain, production costs, and long-term growth prospects. However, TSM's strategic investments in advanced technologies and expansion into the US market could help mitigate these risks and ensure long-term growth. As an investor, it is crucial to monitor the geopolitical landscape and assess the potential impact on TSM's operations and revenue streams. A balanced portfolio approach, combining growth stocks like TSM with value stocks, can help navigate the geopolitical uncertainties and capitalize on the AI chip demand.