TSMC’s $100B commitment is the ’least bad’ outcome to meet Trump’s likely goals

Investing.com -- The $100 billion US commitment announced by U.S. President Donald Trump and Taiwan Semiconductor Manufacturing (NYSE:TSM) (TSMC) is “the least bad” outcome for the contract manufacturer to meet Trump’s goals, according to Bernstein analysts.

Earlier today, Trump and TSMC Chairman & CEO C.C. Wei jointly announced plans to expand the company’s investments in the U.S., with an additional $100 billion planned on top of the previously announced $65 billion.

The move is set to create the largest single foreign investment in U.S. history, resulting in the construction of three new front-end fabrication plants, two advanced packaging facilities, and a major research and development center.

The initiative will generate hundreds of billions of dollars in AI & other cutting-edge chips, 40,000 construction jobs, and tens of thousands of high-paying jobs in the country.

“We see this [as] the “least bad” outcome for TSMC as TSMC can now likely keep Intel (NASDAQ:INTC) at arm’s length, i.e. remaining only as a customer,” analysts led by Mark Li said in a note. “With this, we believe that TSMC can meet Trump’s goals without having an “inorganic” arrangement with Intel.”

“Intel will remain a customer, & a rival, but hardly a threatening one due to their high cost, poor execution & questionable 18A outlook. Most importantly, without equity involvement or technology transfer TSMC is free from Intel’s cost burden and can preserve its technological lead,” they added.

Despite the potential for higher cost pressures, TSMC expects benefits from scale and cost reductions in other areas. The company has been given some leeway in terms of the exact timeline for the $100 billion investment and the ramp-up of capacity, providing flexibility to manage costs.

With plans to build advanced packaging facilities, the initiative completes the AI supply chain in the U.S., but TSMC retains the freedom to develop the newest front-end technology.

The construction of two facilities is set to resolve existing bottlenecks, meeting the needs of clients like Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD). While the announcement included plans for a major R&D center, it left out detailed information on specific technological nodes, suggesting TSMC’s intent to balance AI production in the U.S. with cost considerations.

Also, Bernstein analysts suggest that TSMC’s wafer fabrication equipment (WFE) spending may see a marginal increase, with most of the heightened U.S. investment likely offset by lower investments in Taiwan.

Meanwhile, the likelihood of chip tariffs, which analysts never saw as a significant risk to TSMC, now seems even lower.

“Trump again stressed tariffs’ role in bringing more manufacturing to the US, but we believe it is political pressure, rather than tariffs, that made TSMC increase their US investments as the US does not import a huge amount of raw chips from Taiwan,” analysts explained.

Bernstein maintained an Outperform rating on TSMC shares.