TSMC remains cautious about the potential impact of tariffs on its business.

TSMC remains cautious about the potential impact of tariffs on its business.

Taiwan Semiconductor Manufacturing Company (TSMC) has demonstrated remarkable resilience in navigating geopolitical tensions and economic uncertainties, as evident in its Q2 2025 financial performance. The global semiconductor giant reported a significant 38.6% year-over-year revenue increase to $29.2 billion, underscoring its strategic positioning in the burgeoning artificial intelligence (AI) market [1].

Despite this impressive growth, TSMC remains cautious about the potential impact of tariffs and currency fluctuations on its business. The U.S. Section 232 tariffs, which threaten to impose a 32% duty on Taiwanese imports, including semiconductors, pose a significant risk. While the tariffs remain on hold pending legal appeals, their mere existence has prompted TSMC to advocate for exemptions to protect its $165 billion Arizona investment, a critical hub for 2nm chips essential for AI systems [1].

The CEO of TSMC, C.C. Wei, acknowledges that tariffs could indirectly reduce demand by raising consumer prices. However, he emphasizes that TSMC's role as an exporter insulates it from direct financial hits. The real risk lies in demand destruction, where tariffs might force U.S. firms to delay projects or seek alternatives. Yet, TSMC's Q2 results suggest this fear has not materialized, thanks to the insatiable appetite for advanced chips in the AI sector [1].

Currency volatility is another challenge TSMC faces. The New Taiwan Dollar (NTD) has surged 15% against the U.S. dollar since April 2025, eroding margins. A 1% NTD appreciation reduces operating margins by 0.4%, and TSMC estimates an 8% rise would trim gross margins by over 3 percentage points. This volatility stems from U.S. interest rate expectations and geopolitical uncertainty [1].

To mitigate these risks, TSMC has ramped up U.S. production, reducing its reliance on Taiwan's currency. The company generates 60% of its revenue in dollars but incurs most costs in NTD. As the NTD strengthens, its dollar-denominated revenue translates to fewer NTDs, squeezing margins. By expanding its U.S. operations, TSMC is hedging against currency headwinds [1].

TSMC's resilience hinges on AI's meteoric rise. AI chips, particularly those for large-scale language models and autonomous systems, require advanced nodes like 3nm and 2nm, which only TSMC and Intel can mass-produce. AI-related sales now comprise 20% of TSMC's total revenue, fueling its Q2 revenue growth [1].

The company's $165 billion U.S. investment aims to secure 30% of its 2nm capacity in Arizona by 2027. Despite labor shortages delaying construction, TSMC remains undeterred. The investment provides geopolitical insurance, technological leadership, and a currency hedge, all of which are crucial for TSMC's long-term strategy [1].

Investors should be aware of potential risks, such as a global economic slowdown dampening AI adoption, tariffs or supply chain disruptions delaying U.S. fab completion, and NTD volatility persisting if interest rates remain elevated. However, TSMC's strategic capital allocation in Arizona, its dominance in AI-specific nodes, and its margin resilience make it a core holding for investors in the AI era [1].

In conclusion, TSMC's cautious outlook on tariffs and geopolitical uncertainty is well-founded. While the path is rocky, the company's leadership in 2nm technology and its U.S. expansion provide a moat against headwinds. For investors, TSMC remains a strategic choice in a world where AI is the next computing revolution.

References:
- [1] https://www.ainvest.com/news/tsmc-resilience-crossfire-ai-demand-anchors-growth-tariffs-currency-headwinds-2507/