Investors might be wondering how the results of the 2024 election will affect Taiwan Semiconductor Manufacturing (TSMC) (NYSE: TSM). As the world’s largest and most advanced semiconductor producer, it is one of the most critical companies in an important industry.
However, the incoming Trump administration has emphasized an increasing need for domestic manufacturing. Hence, the election results could also make it a target. Thus, chip stock investors should probably contemplate whether they should buy before the Jan. 20 inauguration.
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TSMC is in a geopolitically sensitive situation. China has targeted the company’s home country for takeover in a political battle predating the existence of the semiconductor industry. Today, the ramifications of that dispute affect the entire globe since approximately two-thirds of all chip production takes place in Taiwan.
According to a study by the Semiconductor Industry Association (SIA), only about 12% of chip manufacturing took place in the U.S. in 2020, down from around 40% in 1990. This situation was concerning enough that the Biden administration approved almost $53 billion in chip manufacturing subsidies through the CHIPS Act.
TSMC is about to open a facility in Arizona, but its fabs there are set to cover just under 4% of the company’s total production. That is likely not enough domestic production to appease an administration wanting to return the U.S. to its former glory as a manufacturer.
Despite those political concerns, U.S. companies may continue to buy from TSMC for one critical reason: They have no choice.
Taiwan claims approximately 92% of all wafer production capacity for the most advanced chips, according to the SIA. The most advanced technology depends on these chips, including many desired artificial intelligence (AI) applications. Hence, not buying from Taiwan would mean the U.S. falls behind technologically.
Other companies may only offer the administration limited help. Samsung and Intel are building fabs in the U.S. Like TSMC, they will rely on the most advanced extreme ultraviolet lithography (EUV) machines from ASML. However, TSMC has maintained its technical lead even over companies with the same EUV machines, which will probably force chip companies and governments to continue dealing with TSMC.
Also, ramping up production capacity is a years-long process. Samsung does not expect production to begin at its fab in Texas until 2026, while Intel will likely not begin making chips in Ohio until 2027 or 2028. Thus, the Trump administration will probably have to accept the industry’s current situation for now.
