TSMC Expects $2 Trillion of Products to Use Its Next Chip Technology Within 5 Years

By Sherry Qin

Taiwan's equities market was an investor darling in 2024, outperforming the rest of Asia in large part due to excitement over artificial intelligence. That momentum has not carried over into 2025, as tariff fears and fading AI buzz take some of the shine off Taiwanese stocks.

The benchmark Taiex index shed 10% in the first quarter of the year as foreign investors pulled money out of the market, worried about the impact U.S. President Trump's trade policies will have on export-reliant Taiwan and industry leaders like TSMC that contribute significantly to the economy.

Ahead of "Liberation Day" on April 2, when Trump is due to announce a new slate of tariffs, markets are watching to see what's at stake for major exporters like Taiwan that run trade deficits with the U.S.

U.S. duties on semiconductors could deal a big hit to Taiwan, where the chip industry contributes an estimated 40% of exports and 25% of gross domestic product, ANZ economists say.

If tariffs are imposed only on Taiwan's direct chip exports to the U.S., which accounted for 4.5% of Taiwanese semiconductor exports in 2024, the impact could be limited, ANZ economists Vicky Xiao Zhou and Raymond Yeung said in a research note.

If U.S. tariffs include all products containing Taiwan-made chips, "the impact could be significant," they said.

Questions about overspending on AI infrastructure are also weighing on Taiwan equities, as the emergence of Chinese startup DeepSeek's low-cost model led investors to wonder if new technological developments will erode demand for high-end chips.

DeepSeek's sudden rise in January "exacerbated concerns as to whether adding more computation power is the best way to improve models, and whether AI spending by the likes of Amazon and Microsoft is durable," Morningstar analyst Phelix Lee said in a recent note.

DeepSeek's success has given investors pause, said ING economist Lynn Song. Investors are re-evaluating the belief that the U.S. winning the global AI race is a foregone conclusion and that Taiwan, as the main chip provider, is the biggest beneficiary, he said.

TSMC, the world's largest contract chip maker, accounts for the bulk of the world's advanced semiconductor manufacturing capacity and counts Nvidia and Apple as its biggest clients. Its shares have fallen 15% this year so far after surging 81% in 2024.

Meanwhile, Foxconn Technology, the world's biggest contract electronics maker, tumbled 21% in the first thee months of 2025 after notching a 76% rise last year.

Whether new breakthroughs will change how Taiwanese firms cash in on AI remains to be seen.

Goldman Sachs analysts last week revised down their global AI server volume forecast for 2025-2026 and cut target prices on share of Taiwan AI-server supply chain companies. Among the issues cited were demand-and-supply uncertainties tied to the release of more efficient AI models like DeepSeek's.

Another headwind for Taiwanese equities lies in the continued underperformance of U.S. tech stocks. Taiwan's Taiex has been tracking weakness on the tech-heavy Nasdaq this year as major players experience volatility amid fears of a U.S. recession and policy uncertainty.

Taiwan's tech-driven economy is heavily reliant on demand from the U.S., "especially the 'Magnificent Seven' that have a dominant weight in the U.S. market," said HSBC analysts.

Write to Sherry Qin at sherry.qin@wsj.com

By Adam Clark

Taiwan Semiconductor Manufacturing stock has suffered this year amid worries about potential tariffs on semiconductors and its hefty investment in the U.S.

However, investors should be confident the chip manufacturer can thrive and will likely avoid being dragged into a rescue plan for Intel, according to J.P. Morgan.

American depositary receipts of Taiwan Semiconductor, or TSMC, are down 15% this year through Thursday's close. Apart from a wider move away from stocks exposed to the artificial-intelligence trade, other concerns have revolved around the potential imposition of tariffs on chips.

President Donald Trump has repeatedly suggested he is considering imposing tariffs on chips produced outside the U.S. and it isn't clear if TSMC would receive a waiver on such levies despite pledging a total of $165 billion in U.S. investment.

"We believe that a reciprocal tariff on direct Taiwan exports into the US is unlikely to have much effect on TSMC, given most of the exports are to other regions. The key impact would be if the U.S. were to impose [an] indirect tariff on semiconductors coming from Taiwan as a part of goods imported into the U.S.," wrote J.P. Morgan analyst Gokul Hariharan in a research note.

However, Hariharan noted TSMC's market position means it has the ability to adjust pricing to mitigate any effect on its earnings and that its investment likely lowers the chances of sector-specific levies on Taiwanese chip imports.

The other major question over TSMC in recent weeks has been whether it might participate in a joint venture to take over Intel's chip-manufacturing facilities, after reports it had approached Nvidia and Broadcom over such a possibility.

"Our base case remains that TSMC is unlikely to be involved in any Intel JV or 'rescue plan'...In our view, only under very extenuating circumstances or very lucrative financial rewards would TSMC enter into some kind of JV arrangement for Intel," wrote Hariharan.

It's a mixed message for Intel. It hurts hopes of an immediate cash infusion but investors positive on the stock might be happy that it will retain control of its foundry operations. Intel has said its 18A process is poised to give it a technological lead in chip manufacturing against TSMC as soon as this year.

That's not much of a threat to TSMC, according to Hariharan, who believes it is "highly likely" that Intel will need to outsource more manufacturing to TSMC due to the slower-than-expected entry of the 18A process into mass manufacturing.

Hariharan kept an Overweight rating on TSMC stock, with a price target of 1,500 New Taiwan dollars on its Taiwan-traded stock, which closed 0.6% lower at NT$952 on Friday. Its ADRs were up 0.1% in premarket trading.

Write to Adam Clark at adam.clark@barrons.com

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