Taiwan Semiconductor Manufacturing Co. Ltd., (NYSE: TSM), confirmed that artificial intelligence was not a bubble when it reported strong earnings for the third quarter and raised its revenue forecast for the entire year.
The company is able to maintain its resilience despite the fact that peers like ASML are warning of a weakening in demand.
While TSMC’s continued strength is good news for AI investors, it could pose long-term risks to the United States.
US chip manufacturing dependent on TSMC
TSMC’s position on the market remains solid as it gains market shares over competitors such as Intel.
TSMC is a semiconductor giant that manufactures 90% of advanced chips in the world. This makes US companies such as AMD, Nvidia and Apple heavily reliant upon its production capabilities.
This heavy reliance is a strategic risk to the US, particularly given TSMC’s proximity to mainland China.
American tech companies face supply chain vulnerabilities due to limited alternatives and growing Sino-US tensions.
Furthermore, advanced chips are used in critical US military and infrastructure system, raising concerns about national security when relying on a foreign manufacturer.
TSMC shares listed in New York have risen more than 100% since the beginning of 2024.
US efforts to reduce dependence on TSMC
The US government has taken steps to mitigate the risks associated with its dependence on TSMC through the CHIPS Act. This multi-billion dollar initiative aims to boost domestic semiconductor manufacturing.
TSMC also announced plans to construct production facilities in Arizona.
Despite these efforts, there are still significant challenges.
TSMC will not be able to manufacture its most sophisticated chips on US soil until another three to four year’s time. By then, these chips may already be outdated.
Despite substantial investment, the US will only account for 20% of global advanced chips production by the end the decade. This is down from 37% of 1990.
The United States will remain heavily dependent on TSMC to manufacture advanced chips, leaving it vulnerable to supply chain and cybersecurity risks.
Wall Street is still bullish on TSMC. At the time of writing, a consensus rating of “buy” was given and a dividend yield at that time was 1.24%.
TSMC stock performance
TSMC shares have risen more than 70% in the past year, outperforming other major tech companies in Asia.
Retail investors in the US are actively trading TSMC’s American Depositary Receipts (ADRs). This growth reflects investor confidence in AI.
Robinhood’s platform has seen TSMC ADRs rise 4.5% in early trading.
After TSMC’s earnings announcement, shares of Japanese chip makers like Lasertec Corp. have pared their early losses.
Investors remain cautious despite the recent ASML Holding NV report which revealed lower-than-expected bookings as a result of slower recovery in mobile and automotive sectors.
This post TSMC could pose a long-term risk to the US: Here’s Why appeared first on The ICD
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