Key Points
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U.S. imports of computer and electronic products from Taiwan have soared past imports from China, according to LPL Financial’s analysis of Census Bureau data.
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TSMC, which makes most of the world’s advanced AI chips, said Tuesday that October sales rose about 60% from a year earlier.
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The stock is still about 20% below its October high, but investors should weigh Taiwan’s political risk and the company’s reliance on a few big customers.
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For most of the past 25 years, if you bought a computer part made overseas, it probably came from China, but not anymore.
U.S. imports of computer and electronic products from Taiwan have surged to about $20 billion a month, while imports from China have fallen to around $5 billion, according to an LPL Financial analysis of Census Bureau data. The two lines crossed only recently, after China led for more than two decades.
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The reason is the AI boom. “American technology companies are pouring capital into data centers and computing capacity, but much of the physical equipment needed to build that infrastructure is manufactured abroad,” LPL wrote. The flood of imported chips and servers is so large that the trade deficit subtracted about 3.3 percentage points from U.S. economic growth in the third quarter, even as the economy grew at a 3.4% annualized rate.
It isn’t only Taiwan. China’s share of U.S. imports has fallen sharply, while Taiwan, Mexico, Vietnam and India have gained ground, LPL said. But Taiwan stands out for its role in advanced chips, and no company sits closer to that shift than Taiwan Semiconductor Manufacturing (NYSE:TSM), or TSMC.
Image source: Getty Images.
Sales are still accelerating
TSMC makes chips that other companies design, including most of the world’s advanced AI processors. On Tuesday, it reported that October revenue rose 59.7% from a year earlier to about NT$586.9 billion. That was also up 14.7% from September. For the first 10 months of the year, sales are up 43.3%.
Its third-quarter results showed how profitable that demand is. Revenue rose 41% to $46.7 billion in U.S. dollars, and the company kept 51 cents of every dollar of sales as profit. Its most advanced chips, 7-nanometer and smaller, made up 79% of its wafer revenue.
Management expects more. TSMC forecast fourth-quarter revenue of $52.3 billion to $54.3 billion, up 12% to 16% from the third quarter, citing “the steep ramp-up of our 2-nanometer technology.” On Tuesday, its board also approved about $40.9 billion in new capital spending to add capacity, which is a promising sign it expects demand to last. The board also approved a quarterly dividend of NT$9 per share.
The stock hasn’t kept up
Despite all that, TSMC’s stock has had a rough few weeks. As of early Tuesday afternoon, it traded around $393, up about 23% this year but about 20% below its Oct. 5 record close of $485.80.
The sell-off has hit semiconductor stocks broadly, as investors worry that AI spending can’t keep growing this fast and as Nvidia (NASDAQ:NVDA), one of TSMC’s biggest customers, faces investigations into its CEO.
The risks are real
TSMC isn’t a simple buy-the-dip story. Several risks exist, with the first being location. Most of TSMC’s production is in Taiwan, which China claims as its territory. Any conflict could be difficult for the company and for every business that relies on its chips.
A second risk is concentration. A handful of AI chip designers and cloud giants drive much of TSMC’s growth. If they slow their spending, TSMC will feel it quickly.
And a third is politics at home. LPL warns that new political scrutiny of data centers in the U.S., including in Texas, “could slow development or increase regulatory costs” across the AI supply chain, including semiconductors.
What it means for investors
Trade data makes it clear that AI spending is reshaping where America buys its goods. Much of that surge is AI servers and the chips inside them, many assembled in Taiwan and Mexico. And the most advanced AI chips in those servers are mostly made by TSMC.
For long-term investors who want AI stocks without betting on a single chip designer, TSMC is worth a close look, especially after its pullback. But keep the position sized for the risks, and watch whether its fourth-quarter results land within the range it promised.
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Jonathan Ponciano has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
