The Uncertain Future of Taiwan Semiconductor Manufacturing
A Critical Player in the Chip Industry
As the world’s largest and most advanced semiconductor producer, Taiwan Semiconductor Manufacturing (TSMC) is a critical player in the tech industry. With the 2024 election looming, investors are wondering how the results will impact TSMC’s future. The incoming administration has emphasized the need for domestic manufacturing, which could make TSMC a target.
A Geopolitically Sensitive Situation
TSMC is caught in the middle of a political battle between China and Taiwan, with China seeking to take over Taiwan. This dispute affects the entire globe, as approximately two-thirds of all chip production takes place in Taiwan. The US, in particular, is heavily reliant on Taiwan for its chip supply, with only about 12% of chip manufacturing taking place domestically.
The CHIPS Act: A Band-Aid Solution
The Biden administration approved $53 billion in chip manufacturing subsidies through the CHIPS Act, but this may not be enough to satisfy the incoming administration’s desire for domestic production. TSMC is opening a facility in Arizona, but it will only cover about 4% of the company’s total production, which may not be enough to appease the administration.
Why US Companies Can’t Afford to Boycott TSMC
Despite political concerns, US companies may have no choice but to continue buying from TSMC. Taiwan claims approximately 92% of all wafer production capacity for the most advanced chips, which are essential for artificial intelligence applications. Not buying from Taiwan would mean falling behind technologically.
Other Companies Can’t Fill the Gap
Samsung and Intel are building fabs in the US, but they will rely on the same extreme ultraviolet lithography machines as TSMC. Even with these machines, TSMC has maintained its technical lead, making it difficult for other companies to fill the gap. Ramping up production capacity is a years-long process, so the Trump administration will likely have to accept the industry’s current situation for now.
A Compelling Investment Opportunity
Despite the risks, TSMC stock may be an attractive investment opportunity. In the first nine months of 2024, revenue surged 32% higher compared to the same period in 2023, and the company’s net income rose 33% from year-ago levels. With a P/E ratio of 30, TSMC stock trades at a discount to its largest clients, making it a likely winner for investors.
A Likely Winner Despite Political Uncertainty
Ultimately, TSMC stock remains a likely buy before Jan. 20. While a Trump administration may want more manufacturing in the US, TSMC is too indispensable to the tech industry and the world economy to be swept aside. Even if a company matched or surpassed TSMC, it would take years to build the necessary fabs, making TSMC a critical player in the chip industry.
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