Taiwan Semiconductor Manufacturing TSM plans to invest another $100 billion in Arizona chipmaking facilities. The firm’s latest plans include three fabrication plants, or fabs, two advanced packaging facilities, and a research and development center. This brings TSMC’s cumulative investment budget in the US to $165 billion.
Why it matters: We see the new fabs as a stronger signal that TSMC’s investments are not commercially driven. The company previously said construction and manufacturing are more expensive in the US and it prefers to keep R&D and manufacturing close in Taiwan.
- TSMC must convince customers to pay even more for the new fabs to maintain corporate-wide profitability. We anticipate less US government support, as the so-called Department of Government Efficiency vows to cut billions in federal spending.
- The announcement should extend TSMC’s investment roadmap to around 2040, considering the initial $65 billion involves three fabs scheduled to complete by 2030. The new fabs will serve artificial intelligence and likely also smartphone applications.
The bottom line: We downgrade our Capital Allocation Rating for TSMC to Standard from Exemplary, amid heightened pressure to base investments on geopolitical instead of financial returns. We maintain our fair value estimate of $273 per ADR share.
- TSMC’s balance sheet remains strong, with a long-standing net cash position. Distribution is also appropriate at about 40% EPS on average.
- We make no change to our earnings forecasts as the $100 billion is unlikely to be spent until the third Arizona fab (announced in 2024) nears completion around late 2028 or early 2029.
Taiwan Semiconductor Manufacturing Company Stock vs. Morningstar Fair Value Estimate
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