The new administration has launched a slew of tariffs, paused them, and re-applied them, injecting volatility into the markets.
Semiconductors are still reeling from the impact of the new administration’s policy decisions, especially Taiwan Semiconductor Manufacturing (NYSE:TSM), headquartered in Hsinchu, Taiwan.
Over the past five years, Taiwan Semiconductor has returned more than 220%, not least because its chip fabrication is a fixture in the industry. With threats of China-vs-US on the horizon economically and perhaps even militarily, we look into Taiwan Semiconductor a bit more closely to see whether it might be a solid investment now.
What Is Going on in the Semiconductor Industry?
Yes, TSM is quite cheap, especially if we compare it to its peers. The price sits at 17.38x its forward non-GAAP earnings and 6.27x its forward sales. Both are lower than the industry averages and cheaper than its own five-year average. These multiples are paltry compared to prior highs, though, and that shouldn’t be a surprise.
The chip industry has always been a rollercoaster, booms and busts are baked into how it works. That’s because so many different factors come into play, from policy out of Beijing to the mismatch between supply and demand from consumer upgrade cycles as well as the speed of new manufacturing capacity coming online.
But now, artificial intelligence is shaking things up in a big way. The rise of large language models has created massive demand for the kind of chips that power them, especially GPUs and specialized AI processors used in data centers.
The numbers tell the story. Gartner reports that global semiconductor revenue from data centers hit $112 billion in 2024, nearly double the $64.8 billion from the year before. That surge helped push total semiconductor revenue to $626 billion last year, up 18.1% from 2023.
In sharp contrast, this year is posing some roadblocks along the journey to higher highs. Most importantly, the new administration has declared a slew of tariffs on goods imported from other countries. Included in the list is Taiwan, which is an important chip-producing nation. A 32% tariff was imposed on Taiwan.
Will the 90-Day Tariff Pause Settle Markets?
The situation right now is in delicate balance. While the market is rejoicing the 90-day pause on the tariffs and the exemption of essential consumer electronics and chips from it, they could come back after the stipulated time.
President Trump didn’t beat around the bush and made it clear that there will be tariffs on chips in the future because he wants “chips and semiconductors and other things in our country.”
There is also the factor of the continuing high tariffs on China. The administration has imposed a total tariff of a whopping 145%. China has also retaliated with its own set of tariffs. President Xi Jinping considers Taiwan to be part of its own territory, so the chips fabricated by Taiwan Semiconductor will be exempt from the punitive 125% import duties on U.S. products.
On the other hand, Taiwan has chosen to turn towards the U.S. to hold tariff talks. The country offered a zero-tariff regime and greater purchases and investments. After the first phase of the negotiations, the island nation’s President confirmed that the discussion went “smoothly.”
So right now, the chip market is rife with tension and is right in the middle of the “tariff war” between two nations vying for manufacturing and tech dominance.
Is TSMC the Best Semiconductor Stock to Buy Now
TSM is a fabless chip giant that has NVIDIA, Qualcomm, AMD, and Apple as clients, making it the best semiconductor stock to buy. Needless to say, the U.S. market is extremely important to it and last year, it earned 70% of its revenue from the North American market.
The company aired its ambition of building a fab in Arizona in 2020, with an investment of $12 billion. In 2022, they set out to build their second fab in the area. Since then, management’s focus on U.S. manufacturing has only heightened. Last year, the leadership team secured up to $6.6 billion in direct funding under the CHIPS and Science Act.
This year, Taiwan Semiconductor broadened its footprint in U.S. manufacturing activity by $100 million, which raises its total investment in the U.S. to $165 billion.
Recently, the trillion-dollar chip giant Nvidia started producing its Blackwell AI GPUs at TSMC’s Arizona fab. Jensen Huang’s firm started using the 4nm process in the production of the initial chips and is expected to soon upgrade to the 2nm technology by the end of this decade.
Last year, it posted an annual revenue of NT$2.89 trillion or $90.08 billion, which was 33.9% higher than the prior year.
Gross margin for the year stood at 56.1%, up by 1.7 percentage points from the prior year due to a higher capacity utilization rate. TSM posted a net income of NT$1.17 trillion or $36.49 billion, up 39.9% from the year-ago level.
For bulls they can cling to expectations that the company will reap gains from the demand for chips that can build AI models, while it might receive some insulation from the tariffs due to its U.S.-based activities.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
