Trump’s push for American-made AI chips hits TSMC’s margins
President Donald Trump’s push to produce advanced semiconductors in the US is driving up costs and squeezing margins -most TSMCThe world’s leading chip manufacturer.
After Trump returns to power in 2025, the president has repeatedly threatened to impose tariffs on companies that do not manufacture their products in America.
Since then, TSMC has announced a total of $200 billion in commitments to the country, including last week announcing a $100 billion investment in advanced semiconductor manufacturing and packaging facilities in the United States.
The company said blockbuster earnings this quarter were driven by overseas expansion, while it was boosted by the AI boom (TSMC’s market cap has risen more than 100% in the past 12 months).
TSMC stock.
Gross margin increased beyond expectations, but that was offset by weakening from overseas factories, CFO Wendell Huang said on the earnings call. He added that margins would shrink further over the next “few years” as overseas factory projects “increase”.
“President Trump’s leadership is driving companies to invest in American manufacturing,” Commerce Secretary Howard Lutnick said in a statement.
“TSMC’s announcement of an additional $100 billion in investment, following our historic agreement on trade and investment with Taiwan, will create tens of thousands of American jobs and bring advanced semiconductor manufacturing back to America.”
While other Asian chipmakers, including SK Hynix, are developing US facilities, TSMC has made its largest commitment to date. Aggressive US expansion exposes it to higher production costs and creates a potential headwind for margins.
political pressure
TSMC published a report on Thursday. There was a 77.4% year-on-year increase in second-quarter profit, beating forecasts and marking another record-breaking quarter for the world’s largest committed chipmaker.
TSMC’s Huang told CNBC that the company is also expanding aggressively in the U.S. as it continues to see a “multi-year mega trend of demand” from its customers.
Political pressure is another important driver of expansion abroad.
“Trillions of dollars of investments by TSMC and other semiconductor companies are a result of President Trump’s trade and economic policy, from the historic trade agreement with Taiwan to investments in the renegotiated CHIPS program,” a White House spokesperson told CNBC.
Construction in the US is much more expensive.
“Overall, we estimate TSMC’s US chips will be 20-50% more expensive than those produced in Taiwan, depending on subsidy timing, tax credit accrual and other cost fluctuations,” Morningstar senior equity analyst Phelix Lee told CNBC. Lee added that he expects customers to absorb more of the higher production costs.
TSMC plans to raise prices for both advanced and mature chip production by up to 10% in 2027, Nikkei reported Tuesday. TSMC told CNBC it has no comment on pricing.
“What helps TSMC is the lack of any material competition,” Gartner vice president analyst Gaurav Gupta told CNBC.
Gupta said that because of TSMC’s dominance in the leading node market, “a large portion of the increased costs will have to be borne by its customers who want to diversify or have received authorization from the U.S. government to purchase domestic chips.”
Margins
Huang said the company estimates that the reduction in gross profit margin resulting from the expansion of factories abroad in the next few years will be 2% to 3% in the early stages, and will increase to 3% to 4% in the later stages.
“This is a margin difference that TSMC can afford because of its very high overall margins,” said Gil Luria, head of technology research at DA Davidson. TSMC’s second-quarter gross margin was 67.7%, up slightly from 66.2% in the first quarter.
“After Covid disrupted the global supply chain, customers increasingly sought geographic diversification,” said Morningstar’s Lee, as Trump doubled down on his calls for domestic production.
“Customers are preparing for geopolitical, logistics and other disruptions in the supply chain,” he added. “While it is less clear how the carrot and stick will be distributed, we expect U.S.-led pressure to continue beyond Trump.”
