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Semiconductor Supremacy: Why TSMC is the Safe Bet in the U.S.-China Tech War

Clyde MorganWednesday, May 21, 2025 4:38 am ET

28min read

The global semiconductor industry is at a crossroads. U.S. export restrictions on advanced AI chips and manufacturing equipment have intensified the tech cold war with China, reshaping supply chains and market dynamics. For investors, the question is clear: Which chipmakers can thrive in this high-stakes environment? While NVIDIA faces headwinds from geopolitical headwinds, TSMC emerges as a strategic anchor—its diversified manufacturing footprint, cutting-edge CoWoS packaging, and global partnerships positioning it to dominate the AI era. Here’s why investors should reallocate capital to TSMC now.

The Geopolitical Backdrop: U.S. Restrictions Accelerate China’s AI Chip Self-Reliance

The U.S. has imposed sweeping export controls on advanced semiconductors and manufacturing equipment since 2023, targeting China’s access to AI chips like NVIDIA’s H100 and H20 series. While these measures aim to curb Beijing’s military and commercial ambitions, they’ve backfired in one critical way: China is now sprinting toward self-sufficiency.

China’s Semiconductor Fund: A $47.5 billion government-backed fund (2024) has turbocharged domestic chip production. Companies like Huawei (Ascend 910C) and SMIC (5nm chips) are closing the performance gap with U.S. rivals.
Workarounds and Innovation: Chinese firms are bypassing U.S. tech stacks. For instance, Yangtze Memory’s high-density memory chips and Alibaba’s RISC-V-based CPUs (C930) are sidelining foreign dependencies.

The result? NVIDIA’s market share is eroding. The company reported a $5.5B revenue hit in 2024 due to lost sales to China, with its H20 chip—designed to comply with earlier export rules—now banned under 2025 restrictions.

Why TSMC is the Resilient Choice in a Fragmented Market

While NVIDIA battles regulatory headwinds, TSMC’s diversified manufacturing and global partnerships create a moat no competitor can match.

CoWoS: The AI Chip Enabler
TSMC’s CoWoS (Chip-on-Wafer-on-Substrate) technology is critical for advanced AI chips. It allows stacking of GPU, memory, and other components on a single package, reducing latency and boosting performance. NVIDIA’s H100 and AMD’s Instinct chips rely on CoWoS—a dependency that locks in TSMC’s revenue.
Capacity Expansion: TSMC plans to double CoWoS capacity by 2026, securing its role as the sole provider of this cutting-edge packaging.
Geopolitical Resilience
TSMC’s facilities span Taiwan, China, the U.S., Japan, and Europe. This geographic diversification shields it from overexposure to any single market’s regulatory whims. For example:
U.S.: Building a $12B factory in Arizona to serve the Pentagon and AI startups.
Japan: Partnering with Sony to produce advanced chips for AI and automotive.
China: Maintaining operations in Wuhan (28nm) while shifting advanced-node production to safer geographies.
The Druckenmiller Play
Investor Stanley Druckenmiller has increased his TSMC stake by 20% in 2024, citing its “irreplaceable position in the AI supply chain.” Unlike NVIDIA, TSMC’s business model is less tied to any single market’s AI adoption—it profits whether chips go to U.S. data centers, Chinese AI labs, or European cloud providers.

The Data Speaks: TSMC’s Long-Term Edge

Revenue Growth: TSMC’s revenue rose 18% YoY in 2024Q4, outpacing NVIDIA’s 5% decline.
Margin Stability: TSMC’s 55% gross margins (2024) vs. NVIDIA’s 42% reflect its superior cost controls.
Valuation: At 18x forward P/E, TSMC trades at a discount to NVIDIA’s 32x—a bargain given its lower risk profile.

Conclusion: Reallocate Capital to TSMC—The Tech Cold War’s Winner

The U.S.-China chip war has created losers and winners. NVIDIA’s reliance on a shrinking Chinese market and volatile export rules makes it a speculative bet. TSMC, however, is the only semiconductor giant with the scale, technology, and geopolitical agility to dominate this new era.

Action Items for Investors:
1. Sell NVIDIA: Its exposure to U.S.-China tensions and reliance on AI demand (which could flatten) make it a high-risk play.
2. Buy TSMC: Its CoWoS dominance, global foundry network, and Druckenmiller’s endorsement justify a 5-7% portfolio allocation.
3. Monitor TSMC’s CoWoS CapEx: Any delays could open opportunities to buy the dip.

The semiconductor landscape is fracturing, but TSMC is the glue holding it together. This is a generational opportunity to own the company defining the AI age.

—JR Research

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