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TSM Expands Global Footprint: Growth Engine or Margin Headwind?
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Key Takeaways
Taiwan Semiconductor is investing $165B in new U.S. fabs and packaging facilities for AI and HPC chips.
TSM is also expanding in Japan, Germany, and Taiwan to diversify its supply chain and serve local markets.
New overseas fabs could cut gross margins by 2-3 points annually over the next three to five years.
Taiwan Semiconductor Manufacturing Company (TSM - Free Report) , also known as TSMC, is currently focusing on its ambitious global expansion strategy to build a diversified semiconductor supply chain. The strategy will also help the company meet the growing demand for artificial intelligence (AI) and advanced computing chips.
In the United States alone, Taiwan Semiconductor is investing $165 billion to build five new state-of-the-art fabrication facilities and two advanced packaging facilities in Arizona. These facilities will boost the U.S. semiconductor supply chain for chips used in AI and high-performance computing.
In Japan, TSMC is building its second fabrication facility in Kumamoto. In Europe, the company is building a specialty fabrication facility targeting the automotive sector in Dresden, Germany. TSM is also expanding its domestic capacity with a plan to build 11 new wafer fabs and four advanced packaging facilities.
This global expansion reflects Taiwan Semiconductor’s response to customer demand for geographic flexibility and government incentives. By locating capacity closer to key clients and end markets, the company strengthens its role as a critical supplier in the semiconductor supply chain.
Nonetheless, these overseas fabs come with higher operating costs, raising questions about profitability. New fabs in the United States, Japan and Germany are vital for geopolitical risk mitigation, but they come with higher costs. These facilities are expected to drag down gross margins by 2-3 percentage points annually over the next three to five years due to higher labor and energy costs, along with lower utilization rates in the early stages.
How Are TSMC’s Rivals Working on Global Expansion?
Taiwan Semiconductor’s competitors, Intel Corporation (INTC - Free Report) and GlobalFoundries Inc. (GFS - Free Report) , are also expanding their global presence to compete in advanced semiconductor manufacturing.
Intel is heavily focusing on expanding its fabrication capacity in the United States, where it plans to invest more than $100 billion. The investment plan includes expanding manufacturing capacity across Arizona, New Mexico, Oregon and Ohio. Intel’s significant U.S.-focused investment is supported by up to $7.86 billion in grants and other incentives from the U.S. CHIPS and Science Act.
GlobalFoundries, while not competing directly at the most advanced nodes, is focusing on specialty and mature processes. GlobalFoundries has planned to invest $16 billion in the United States to expand its manufacturing and advanced packaging capabilities.
TSM’s Share Price Performance, Valuation and Estimates
Shares of Taiwan Semiconductor have risen around 27.1% year to date compared with the Zacks Computer and Technology sector’s gain of 16.8%.
Taiwan Semiconductor YTD Price Return Performance
Image Source: Zacks Investment Research
From a valuation standpoint, TSM trades at a forward price-to-earnings ratio of 23.63, lower than the sector’s average of 28.27.
Taiwan Semiconductor Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Taiwan Semiconductor’s 2025 and 2026 earnings implies a year-over-year increase of 39.6% and 11.6%, respectively. Estimates for 2025 and 2026 have been revised downward in the past 30 days.
Image: Bigstock
TSM Expands Global Footprint: Growth Engine or Margin Headwind?
Key Takeaways
Taiwan Semiconductor Manufacturing Company (TSM - Free Report) , also known as TSMC, is currently focusing on its ambitious global expansion strategy to build a diversified semiconductor supply chain. The strategy will also help the company meet the growing demand for artificial intelligence (AI) and advanced computing chips.
In the United States alone, Taiwan Semiconductor is investing $165 billion to build five new state-of-the-art fabrication facilities and two advanced packaging facilities in Arizona. These facilities will boost the U.S. semiconductor supply chain for chips used in AI and high-performance computing.
In Japan, TSMC is building its second fabrication facility in Kumamoto. In Europe, the company is building a specialty fabrication facility targeting the automotive sector in Dresden, Germany. TSM is also expanding its domestic capacity with a plan to build 11 new wafer fabs and four advanced packaging facilities.
This global expansion reflects Taiwan Semiconductor’s response to customer demand for geographic flexibility and government incentives. By locating capacity closer to key clients and end markets, the company strengthens its role as a critical supplier in the semiconductor supply chain.
Nonetheless, these overseas fabs come with higher operating costs, raising questions about profitability. New fabs in the United States, Japan and Germany are vital for geopolitical risk mitigation, but they come with higher costs. These facilities are expected to drag down gross margins by 2-3 percentage points annually over the next three to five years due to higher labor and energy costs, along with lower utilization rates in the early stages.
How Are TSMC’s Rivals Working on Global Expansion?
Taiwan Semiconductor’s competitors, Intel Corporation (INTC - Free Report) and GlobalFoundries Inc. (GFS - Free Report) , are also expanding their global presence to compete in advanced semiconductor manufacturing.
Intel is heavily focusing on expanding its fabrication capacity in the United States, where it plans to invest more than $100 billion. The investment plan includes expanding manufacturing capacity across Arizona, New Mexico, Oregon and Ohio. Intel’s significant U.S.-focused investment is supported by up to $7.86 billion in grants and other incentives from the U.S. CHIPS and Science Act.
GlobalFoundries, while not competing directly at the most advanced nodes, is focusing on specialty and mature processes. GlobalFoundries has planned to invest $16 billion in the United States to expand its manufacturing and advanced packaging capabilities.
TSM’s Share Price Performance, Valuation and Estimates
Shares of Taiwan Semiconductor have risen around 27.1% year to date compared with the Zacks Computer and Technology sector’s gain of 16.8%.
Taiwan Semiconductor YTD Price Return Performance
Image Source: Zacks Investment Research
From a valuation standpoint, TSM trades at a forward price-to-earnings ratio of 23.63, lower than the sector’s average of 28.27.
Taiwan Semiconductor Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Taiwan Semiconductor’s 2025 and 2026 earnings implies a year-over-year increase of 39.6% and 11.6%, respectively. Estimates for 2025 and 2026 have been revised downward in the past 30 days.
Image Source: Zacks Investment Research
Taiwan Semiconductor currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.