Taiwan Semiconductor Manufacturing Co. Fights Currency Volatility with Hedging Strategies

TSMC sees currency volatility as a "big uncertainty" to its margins and will constantly review hedging strategies. The firm's CFO, Wendell Huang, mentioned using different hedging alternatives such as selling US dollars in the market spot, forwards contracts, and moving US dollar cash to an offshore holding company. TSMC faces challenges from a red-hot local currency, which has surged over 11% this year against the greenback. The firm expects a bigger hit from a stronger Taiwan dollar in Q3.

Taiwan Semiconductor Manufacturing Company (TSMC) has seen significant financial success in the second quarter of 2025, posting record profits driven by the AI-driven supercycle. However, the company faces substantial challenges from currency volatility, particularly the appreciation of the New Taiwan dollar (NT$). TSMC's Chief Financial Officer, Wendell Huang, has acknowledged that currency fluctuations pose a "big uncertainty" to the company's margins. The firm is reviewing and implementing various hedging strategies to mitigate this risk.

The NT$ has surged over 11% this year against the U.S. dollar, compressing margins by 3 percentage points without hedging. TSMC forecasts a 6% revenue drag in Q3 from further NT$ strength [1]. To address this, TSMC is exploring multiple hedging alternatives, including selling US dollars in the market spot, forwards contracts, and moving US dollar cash to an offshore holding company [2].

TSMC's strategic response to currency volatility includes geopolitical diversification. The company is expanding production in the U.S., Japan, and Germany, reducing reliance on Taiwan and insulating itself from trade disputes. The Arizona 3nm plant alone accounts for $65 billion of its $165 billion U.S. investment [1]. Additionally, TSMC is leveraging its technological leadership to maintain a competitive edge. The upcoming 2nm node promises 20% faster performance and 30% better power efficiency than the 3nm node, reinforcing TSMC's market position [1].

Despite these challenges, TSMC remains optimistic about its long-term prospects. The company projects AI-related revenue to double in 2025, with a 40% compound annual growth rate (CAGR) through 2030, underpinned by global AI infrastructure spending expected to hit $100 billion annually by 2027 [1]. TSMC's AI dominance, margin resilience, and global footprint make it a must-own stock for investors betting on the AI revolution.

References:
[1] https://www.ainvest.com/news/tsmc-ai-dominance-strategic-resilience-navigating-tariffs-currency-headwinds-2507/
[2] https://www.bloomberg.com/news/articles/2025-07-17/tsmc-warns-of-bigger-currency-hit-to-revenue-in-third-quarter