TSMC's US Expansion Blossoms Amid CHIPS Act Windfall and AI Demand Surge

As of last week, Taiwan Semiconductor Manufacturing Co. (TSMC) experienced a 1.53% decline, with a 1.5% rise over the past week and a 7.09% increase year-to-date. The company's latest market capitalization stands at approximately $1.097 trillion.

TSMC is significantly advancing its American projects, boosted by the CHIPS Act under the Biden administration, with a $66 billion commitment for the establishment of three cutting-edge chip manufacturing plants in Arizona. Wendell Huang, TSMC's CFO, indicated that the support from the government, which includes a $15 billion fund already received, will continue under the leadership of the upcoming administration. Despite delays, the first plant in Arizona began producing advanced chips in the last quarter of the previous year. The second plant is anticipated to be operational by 2028. The aggregate investment in Arizona's projects announced in May 2020 has ballooned to over $65 billion, particularly buoyed by the strategic initiatives following the 2022 CHIPS Act, which earmarked close to $53 billion for bolstering domestic semiconductor manufacturing.

Recently, TSMC reported an impressive fourth-quarter profit surge, attributed to a robust demand for AI chips, prompting nearly a 4% rise in share prices. TSMC's CEO and Chairman, C.C. Wei, in an earnings call, reiterated the company's solid and longstanding ties with the U.S. government, emphasizing transparent communications with both current and future administrations. Although Wei assured their plans would remain unaffected, he mentioned the company’s preference for discretion concerning their interaction during political transitions.

Meanwhile, Wei highlighted that the new U.S. plants might lag behind Taiwan in adopting the latest chip technologies due to regulatory hurdles and multiple licensing requirements that prolong the timeline. The construction pace in Arizona is notably slower than in Taiwan, and Wei noted that each step necessitates licensing approval, which is twice as time-consuming as in Taiwan. Beyond contractual stimuli with TSMC, the CHIPS Act initiative aims to spark $65 billion in private investments, promising to significantly enlarge the semiconductor manufacturing capacity in the U.S. TSMC also contends with elevated costs for materials in the U.S., opting for sourcing from Taiwan where economically viable, signaling transportation and operational cost challenges.

Amidst varied industry narratives, TSMC has countered rumors about Nvidia cutting orders for their advanced CoWoS packaging technology. Both companies assert ongoing strong demand, despite shifting technological needs and reallocations within Nvidia’s product roadmap. Industry analysts corroborate that any perceived reductions are grounded in strategic adjustments rather than demand decline. TSMC’s focus on evolving its CoWoS technology as a mainstream solution aligns well with its clients' forward-thinking production strategies.

TSMC's performance continues to attract attention, with its fourth-quarter revenue and profit surpassing forecasts, driven in part by AI investments and expected to maintain momentum into the 2025 financial year. This reflects a broader trend of sustained growth in the electronics sector, heavily linked to its role as a primary contractor for tech giants like Apple and Nvidia. With the backdrop of geopolitical tensions and restrictive AI chip export guidelines from the U.S., TSMC remains steadfast in expanding its global footprint, notably with projects in Japan and potential facilities in Europe targeting AI market opportunities.