TSMC's Trillion-Dollar Triumph: Navigating U.S. Investments and AI Demand Amid Geopolitical Tensions
1min read As of last week, Taiwan Semiconductor Manufacturing Company (TSMC) maintained a steady stock price, marking a continuous two-day increase with a rise of 4.13% over that period. The company has experienced a weekly gain of 4.28% and a remarkable year-to-date climb of 96.72%, bringing its latest market capitalization to approximately $1.043 trillion.
Amidst discussions about its investment strategies following potential political changes in the U.S., TSMC has affirmed that its plans to invest heavily in the country remain unchanged. The semiconductor giant, recognized as a primary supplier for tech firms such as Apple and NVIDIA, is set to invest $65 billion in building a new plant in Arizona. Earlier this year, TSMC secured a $6.6 billion subsidy from the U.S. government to aid this venture, underscoring the strategic importance of its operations in the United States.
The company has shown robust stock performance this year, primarily driven by strong demand for artificial intelligence. TSMC's October sales figures, however, reflect a different story, increasing by 29.2% — the slowest pace since February — which has prompted concerns about the sustainability of AI chip demand. This slowdown is notable compared to consistent monthly growth of over 30% from March to September. Analysts predict that TSMC’s sales for the fourth quarter will increase by approximately 36.1%.
The Biden administration continues to expedite the distribution of subsidies under the CHIPS Act to support companies like TSMC in establishing U.S. manufacturing plants. Recently, binding agreements have been made to allocate substantial grants and loans, including a potential $6.6 billion to TSMC, which will facilitate the construction of multiple state-of-the-art production facilities capable of manufacturing cutting-edge 3nm chips and beyond.
There are, however, emerging concerns with geopolitical implications — TSMC recently announced a suspension of 7nm or below chip services to Chinese AI and GPU clients amidst current U.S.-Taiwan negotiations. This decision could significantly impact these Chinese firms, pushing them to seek alternate manufacturers, despite local production capacity limitations.
Additionally, TSMC is facing increased operational costs in Taiwan, with electricity prices set to rise further next year, potentially affecting profit margins. Nevertheless, the company has sustained its long-term gross margin target at 53% or higher, building on its recent quarterly gross margin of 57.8%.
Despite these challenges, TSMC's stock has climbed by 88% year-to-date, reflecting the market's continued confidence in its strategic growth plans and technological prowess.