Semiconductor giant Taiwan Semi (TSM), or TSMC, is facing a major challenge as electricity prices and power outage risks in Taiwan continue to climb. According to the Financial Times, the company expects higher power costs in its home country compared to TSM’s other plants in the U.S. and Japan. This increase in energy costs could potentially impact its ability to expand its manufacturing operations in the country.
Don't Miss Our Christmas Offers:
- Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Earlier, Taiwan was known for its relatively low energy costs, making it an attractive hub for semiconductor manufacturing. However, the global surge in fossil fuel prices and limited alternative energy sources have forced the Taiwanese government to raise electricity rates multiple times since 2022.
Furthermore, Taiwan’s electricity operating reserve has repeatedly fallen below the government’s target of 15% over the past decade, leading to outages. As power demand from semiconductor manufacturers continues to rise, the risk of outages is increasing, which could disrupt production at TSMC.
TSMC Sees Modest Margin Impact from Rising Costs
It’s worth noting that TSMC is well-equipped to handle the rising costs due to its solid financial position and operational efficiency. The company anticipates that increasing energy costs will have a modest effect on its gross margin, predicting a nearly 1% decrease in 2025. However, these expenses could influence the company’s future investment choices in Taiwan.
Meanwhile, the rising prices and outage risks are becoming more concerning for Taiwan’s manufacturing sector as energy demand keeps rising. The production of advanced chips has become more energy-intensive, with power needs doubling in recent years. Also, the growing need for data centers due to AI growth adds to this problem. To maintain its leadership in the semiconductor industry, Taiwan must take quick steps to address these energy issues.
Is TSM a Buy, Sell, or Hold?
Turning to Wall Street, TSM has a Strong Buy consensus rating based on five Buys assigned in the last three months. At $205, the average TSMC price target implies 7.02% upside potential. Shares of the company have gained more than 85% year-to-date.
