Adam Levine

Coming off another stellar earnings report, shares of Taiwan Semiconductor Manufacturing hit a new high last week, stretching the chip maker's market capitalization to over $1 billion.

Like many companies dependent on U.S. imports, Taiwan Semi had a rough start to the year, with the stock down 28% just after President Donald Trump announced a 32% tariff on imports from Taiwan, later lowered to 10%. Since then, the company's American depositary receipts are up over 70%, and sport a year-to-date gain of 22%.

Taiwan Semi has ridden the artificial-intelligence wave. It has the most advanced chip-manufacturing processes, and clients are household names including Apple, Nvidia, and Advanced Micro Devices. Even Intel, which prides itself on using its own manufacturing processes, was forced to contract with Taiwan Semi.

While Apple remains Taiwan Semi's foundational customer, ordering over 200 million iPhone chips a year, the key to its current performance are chips from Nvidia, the leader in AI technology. Nvidia's revenue was up 69% annually in its first quarter. In its just-reported second quarter, Taiwan Semi's revenue and earnings were up 39% and 61%, respectively, from a year ago.

Many investors think that Taiwan Semi still has a lot of runway ahead of it. Not only does it make Nvidia's AI chips, but it also manufactures competing silicon for AMD, Microsoft, Amazon.com, and Google. Though Intel may come to challenge its manufacturing in coming years, so long as the AI investment boom continues, Taiwan Semi figures to be right in the middle of it.

"AI Cloud is fueling calendar-year 2025's 30% revenue expansion while AI could drive greater silicon use in PC/mobiles devices in the coming year, " wrote TD Cowen analyst Krish Sankar in a note to clients after Taiwan Semi's earnings release. However, the "tariff impact to demand remains a risk later this year." Sankar rates Taiwan Semi ADRs at Hold with a $250 price target.

Near term, the trade war touched off by President Trump is the biggest risk. Though production in its Arizona factories is ramping, Taiwan Semi is still very sensitive to tariffs on the devices that use its chips, most of which are made in Taiwan, China, India, Vietnam, and Mexico.

Currently, only tech imports such as smartphones and AI servers from China are seeing a tariff charged to the U.S. importer. For now, imports from other countries come with no tax. But this may change soon; the U.S. Department of Commerce is reviewing the national security implications of American dependence on tech imports, and may apply special tariffs just for those products.

So Taiwan Semi's U.S. investments may still not solve the tariff issue. For example, Nvidia's AI chips that are produced in Arizona currently have to be sent back to Taiwan for "advanced packaging," which sews small "chiplets" together. In a partnership with Amkor, Taiwan Semi should have this capability in the U.S. by 2028.

But even then, the packaged chips have to be mounted on the main circuit board for the device, and the location of that assembly typically determines the country of origin at U.S. Customs. There is very little assembly capability in the U.S., and not much planned. Though there may be clawbacks for U.S. content in these goods, the rest of the device will be taxed at the appropriate rate.

In that case, Taiwan Semi's customers are going to have to choose between higher prices, reduced profitability, or some combination of the two. That could affect Taiwan Semi, who are upstream from that.

In any case, there will remain a lot of uncertainty surrounding tech devices until the Trump administration announces the results of the Commerce Department investigation.

Write to Adam Levine at adam.levine@barrons.com

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July 21, 2025 12:22 ET (16:22 GMT)

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