Taiwan Semiconductor Manufacturing (NYSE: TSM) made a major announcement as part of its second-quarter earnings report: It’s increasing its investment in its Arizona production facilities by another $100 billion. That brings the total investment to $265 billion — a major win for domestic chip production. But what does that mean for TSMC (as it is also known)?
The expansion showcases that there is still growing and unmet demand for chip production, making the stock a no-brainer buying opportunity.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Chip demand is only going to get greater
There has been a bipartisan political push in the U.S. to increase domestic chip production. The CHIPS Act was passed during the Biden administration to provide financial incentives to move more production to the U.S. The Trump administration has encouraged firms that have moved production outside of U.S. borders to bring it back as well. TSMC is one of the chipmakers taking advantage of the incentives offered, and it may be doing so for reasons that are less tied to financial incentives.
A cause for concern about investing in TSMC right now is the complicated political environment in Taiwan. Taiwan’s strained relationship with China has always been complex, and there are growing fears that China will try to bring the country under China’s influence by force. Such a move would be very disruptive to the world’s economy. TSMC is diversifying some of its production elsewhere, including to the U.S., to lessen the negative impact of a Chinese takeover in Taiwan. It doesn’t fully resolve the issue, but it would likely help.
But aside from the China situation, TSMC is well situated to benefit from what has become the largest tech boom in decades. The growth of artificial intelligence (AI) has created an unprecedented demand for computing chips. Given that TSMC is the world’s largest chip foundry, it’s well-positioned to benefit.
Because of its leadership position, TSMC has access to extensive information on potential demand for its clients’ products, including future order plans. If TSMC decides it needs to invest another $100 billion in infrastructure, that’s a pretty good indicator that there will be greater demand for chip production across the market in the future.