Taiwan Semiconductor Manufacturing Company Limited (NYSE: $TSM) TSMC, is a Taiwanese semiconductor contract manufacturer and designer for companies globally.
In a major move to bolster domestic semiconductor manufacturing, the Biden administration has agreed to provide $6.6 billion in grants to TSMC to support the construction of three advanced chip fabrication plants in Arizona. This unprecedented investment represents a critical step in the White House’s strategy to secure America’s supply of cutting-edge microchips and reduce reliance on overseas production.
Securing Chip Sovereignty
The agreement, announced on Monday, April 8, underscores the Biden administration’s recognition of the national security and economic implications of chip supply chain vulnerabilities. “America invented these chips, but over time, we went from producing nearly 40% of the world’s capacity to close to 10%, and none of the most advanced chips,” President Biden stated. “That exposes us to significant economic and national security vulnerabilities.”
The COVID-19 pandemic exposed the fragility of global semiconductor supply chains as production bottlenecks and shortages rippled through industries ranging from automobiles to consumer electronics. Moreover, growing geopolitical tensions between the United States and China and the risk of potential military conflict with Taiwan have heightened concerns about the security of chip production centered in Asia.
TSMC’s Expansion in Arizona
The $6.6 billion in federal funding will be coupled with roughly $5 billion in government loans to support TSMC’s construction of three cutting-edge chip fabrication plants, or “fabs,” in the Phoenix, Arizona, area.
“TSMC’s total $65 billion investment in Arizona represents the largest foreign direct investment in the state’s history,” the White House said in a statement. The three fabs are expected to create around 6,000 high-wage tech jobs and an additional 20,000 indirect jobs in construction and other supporting industries.
TSMC Chairman Mark Liu called the investment “unprecedented,” noting that the company’s U.S. customers include several leading technology firms. The first of the three new Arizona fabs is slated to begin production in the first half of 2025, providing a domestic supply of the advanced chips that power a wide range of products, from smartphones and satellites to artificial intelligence systems.
Securing the AI Supply Chain
Industry analysts have emphasized TSMC’s critical role in the global semiconductor ecosystem, particularly in the burgeoning field of AI. Dryden Pence, chief investment officer at Pence Capital Management, described TSMC as the “most important” company in the AI space, as its chips are an “essential building block” for the technology.
“90% of the really high-value chips and the really important ones are made by Taiwan Semi,” Pence explained. “They’re the absolute choke point. They’re 30% of the cost of goods sold of AMD and NVIDIA as well. So they’re absolutely essential to everything that’s happening in AI and in chips going forward.”
With the global demand for data and AI-powered applications expected to grow five-fold between 2019 and 2025, securing a reliable domestic supply of advanced semiconductors has become a top priority for the United States. The Biden administration’s investment in TSMC’s Arizona expansion aims to ensure that American companies and researchers have access to the cutting-edge chips necessary to maintain their technological edge in the AI revolution.
Mitigating Geopolitical and Natural Risks
The decision to bolster TSMC’s presence in the United States also reflects an effort to diversify chip production and mitigate the risks posed by the company’s current concentration in Taiwan. Supply chain experts and U.S. officials have long expressed concern that rising tensions between the U.S. and China, as well as the potential for military aggression against Taiwan, could disrupt the island’s vital semiconductor industry.
The recent earthquake in Taiwan, which temporarily disrupted some of TSMC’s operations, highlighted the industry’s vulnerability to natural disasters. By supporting the construction of additional fabs in the U.S., the Biden administration hopes to create a more resilient and geographically dispersed supply chain for the world’s most advanced chips.
TSMC projects strong 2024 performance, with revenue growth of low-to-mid 20%, expanding margins, and rising demand for advanced 3nm and future 2nm chip technologies, especially in the AI market, despite the earthquake that temporarily disrupted operations.
TSMC Stock Performance
TSM shares are trading higher today, April 8, 2024, up 2.04% to $144.25 as of writing, driven by the news of the Biden administration’s $6.6 billion funding commitment to support TSMC’s expansion of chip manufacturing operations in the United States. Investors are optimistic that TSMC can capitalize on the growing demand for advanced semiconductors, particularly in the artificial intelligence and technology sectors, as it bolsters its production capabilities across multiple countries.
Should You Invest in TSM in 2024?
TSMC’s stock appears poised for continued growth in the coming years, supported by the company’s dominant position in the semiconductor industry and the Biden administration’s efforts to boost domestic chip production. With the construction of three new advanced fabs in Arizona, TSMC is expanding its manufacturing footprint in the United States, reducing supply chain risks and ensuring a reliable domestic source of cutting-edge chips.
Additionally, the surging demand for chips, particularly in the AI and technology sectors, suggests that TSMC’s revenue and earnings potential remain strong. TSMC’s stock could be an attractive long-term investment in 2024 and beyond for investors seeking exposure to the semiconductor industry.
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