How Donald Trump Could Make Taiwan Semiconductor (TSM) Stock Great Again

Like it or not, president-elect Donald J. Trump will almost certainly create a geopolitical paradigm shift. Under Trump 2.0, technology stalwart Taiwan Semiconductor Manufacturing Co. (TSM) could make the chip foundry business great gain. It comes down to Trump’s no-nonsense policies providing a tailwind for the company. For this reason, I’m bullish on TSM stock.

U.S. Dominance

Trump has signaled a return to American dominance — and he’ll apparently use economic coercion if necessary. Late last month, the president-elect stated on his social media platform that he planned to impose an additional 10% tariff on all Chinese goods entering the U.S. Later, Trump doubled down, threatening to hit the so-called BRICS nations with a 100% tariff.

To be sure, this news doesn’t directly benefit TSM stock. What it does do, however, is send a powerful message. Essentially, the incoming Trump administration will play hardball with other nations, even if that causes domestic pain. On the global front, this policy approach should get the heat off of Taipei and firmly on Beijing — a dynamic that benefited the Taiwanese economy under Trump’s first presidency.

Don’t Fight the Tape

In all fairness, geopolitics tends to be messy, especially at the present juncture. And even the Taiwanese reportedly have concerns about Trump’s second term. Nevertheless, the U.S. rivalry with China and other nations will likely lead to a productive relationship with Taiwan. After all, in the Pacific theater, America isn’t exactly replete with allies. Overall, the situation should be bullish for TSM stock.

Additionally, the entire tech sector is enjoying significant momentum. After concerns that heavy hitters in the artificial-intelligence (AI) realm, such as Nvidia (NVDA), may be overvalued, recent strong performances have laid to rest lingering concerns. NVDA could well be on its way to $250 a share and this freight train can help support related AI chip stocks like Taiwan Semiconductor.

Put another way, investors will do well to avoid fighting the tape. Yet another example of this tried-and-true concept is technical analysis. Specifically, recent moving average indicators — both of the simple and exponential variety — have labeled TSM stock a Buy. When both the fundamentals and technical measures are signaling the same message, it generally takes a high-conviction contrarian thesis to warrant moving in the opposite direction.

Option Trades for Taiwan Semiconductor

For confident investors, buying TSM stock outright represents the most straightforward approach. However, with an average price target of $232.50, analysts are anticipating upside of about 16% from current levels. That’s decent but not earth-shattering. And while the most optimistic target calls for $250, that’s less than 25% up from where the shares currently trade. Over the course of one year, such a return might not appeal to everyone.

However, that doesn’t mean investors should ignore TSM stock. Instead, market participants can turn to the options market. By buying a bull call spread — a multi-leg options strategy that involves buying a call option and selling a call at a higher strike price — traders can exercise their bullishness at a discount. In other words, the credit received from the sale of the short call partially offsets the debit paid of the long call.

With this approach, investors can consider in-the-money (ITM) calls as part of their strategy. And while it’s true that the short call strike caps the maximum payout possible, the bull call spread is typically deployed as a short-term speculation. For the ultimate gambler, it’s possible to buy options for multiple expiration dates, thus compounding returns.

Real-World Example

Let’s take a look at a real-world example to demonstrate the power of call option spreads. For the options chain expiring January 17, 2025, there are almost 60 different spreads to choose from. However, you don’t just randomly pick one. Instead, consider the call spread that minimizes the positional and probabilistic nature of risk while simultaneously maximizing the payout.

From my analysis, the market is presenting a great deal for the 195/200 call; that is, buy the $195 call and sell the $200 call. The total debit paid, or amount of money at risk, is $285 for the chance to gain $215 (or a 75% payout). Keep in mind that the average debit required for TSM call spreads of the January 17 options chain stands at $1,018.

Moreover, the breakeven price of the 195/200 call sits at $197.85. That’s 1.4% lower than current levels. Further, because the short call strike is $200, TSM stock doesn’t necessarily need to move higher. Instead, it just needs to hold where it is presently. If by expiration, TSM still clocks in at $200 or above, you’ll get a 75% payout. It sounds ridiculous until you realize that the short call sale dramatically reduces the debit paid for the long (195) call.

Is TSM Stock a Buy?

Turning to Wall Street, TSM stock has a Strong Buy consensus rating based on five Buys, zero Holds, and zero Sell ratings. The average TSM price target of $232.50 implies 15.85% upside potential.

Read more analyst ratings on TSM stock

Conclusion: Harness Call Spreads to Amplify Returns on TSM Stock

Taiwan Semiconductor sits at a pivotal juncture, benefiting from both geopolitical tailwinds and robust demand in the tech sector. Trump’s aggressive stance on China could solidify Taiwan’s strategic importance, indirectly strengthening the company’s global position. Combined with its role in powering innovations like AI, TSM remains a cornerstone of the semiconductor market. For investors seeking to capitalize on this momentum, options strategies like the bull call spread provide a flexible and efficient approach. By limiting upfront risk while retaining significant upside potential, this strategy aligns with Taiwan Semiconductor’s promising trajectory, offering a disciplined yet rewarding pathway for bullish speculators.

Disclosure.