TSMC (TSM) stock is a premium AI growth investment, but Trump’s tariff announcement has shaken things up. This week’s big news was the introduction of controversial tariffs by Donald Trump over the weekend — and following a reactionary knee-jerk selloff, most of the tariffs have since been delayed.
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Investors are quickly realizing that what Donald Trump announces and what he does can often be different things. Although the specter of tariffs has abated for the time being, their potential effect further down the track is significant — especially in hotly contested, glitzy new industries like semiconductors and AI.
If applied too aggressively, future tariffs could hit TSMC’s returns and hurt AI giants like Nvidia (NVDA), which rely on its chips. The good news? Trump’s ire is primarily aimed at China, while Taiwan, the home of TSMC, remains a key U.S. ally—for now.
TSMC is Vital to U.S. Growth
TSMC is the world’s most important chipmaker, supplying Nvidia, Apple (AAPL), Tesla (TSLA), and nearly every major tech firm with its products. It dominates the advanced semiconductor market with a 60% share, far ahead of Samsung’s 15%.
If Trump imposes heavy tariffs on semiconductors, it could hurt the global economy and Western growth. U.S. tech giants, including Trump supporters like Elon Musk, would likely push back due to higher import costs.
On January 27, President Trump proposed imposing tariffs of up to 100% on foreign-made computer chips, aiming to bring manufacturing back to the U.S. While his goal is to boost domestic chip production, a more strategic approach would be to first enhance U.S. manufacturing capabilities to meet Big Tech’s demands before implementing such tariffs on Taiwan.
TSMC is expanding in the U.S., with its Arizona plant set to start producing advanced 4-nanometer chips in early 2025. Previously, Taiwan restricted its chipmakers from manufacturing cutting-edge technologies abroad to maintain a competitive edge. However, in January 2025, the government lifted these restrictions, allowing TSMC to produce 2-nanometer chips overseas. This policy change enhances TSMC’s ability to diversify manufacturing locations, bolstering geopolitical security.
TSMC is Overvalued Regardless of Trump’s Tariffs
TSMC’s current valuation appears too high, propped up mainly by AI-driven market sentiment rather than financial fundamentals.
The company’s three-year annual revenue growth averaged 22.2%, but analysts expect a slight slowdown to 21.79%. Likewise, earnings growth is projected to dip from 26% to 22.69%. Meanwhile, TSMC’s price-to-earnings (P/E) ratio has surged from 18.3 in December 2023 to 28.4 today.
With slowing growth and a stretched valuation, I’m staying on the sidelines.
TSMC Investors at the Mercy of Geopolitics
If the U.S. imposes heavy tariffs on Taiwan, TSMC’s revenue would be hit as Big Tech shifts to domestic chipmakers. The stock could tumble with sales falling and an already high P/E ratio weighing on investors’ minds.
TSMC’s future isn’t just tied to Trump—it’s caught in the crossfire of U.S.-China tensions over Taiwan. If China escalates the status quo, including a ground invasion, as Xi Jinping has hinted, global markets would feel the repercussions, while the AI/Tech sector would feel them most.
Given the risks, I consider it prudent to hold a significant portion of my portfolio in cash equivalents and own some gold right now. This allows me to capitalize on any depressed equity prices that may occur, with gold acting as a direct hedge against any market turmoil that may ensue.
Despite the risks, I’m hopeful that Trump will strengthen U.S.-China relations, potentially avoiding outright conflict. A trade war is possible but far better for markets than a full-blown conflict. In the best case, Trump’s administration fosters a competitive yet respectful dynamic, driving growth for both nations. Worse case, a trade war would affect key companies and possibly TSMC.
Trump’s Tariffs: Boom or Bust?
Love them or hate them, Trump’s tariffs are a double-edged sword. On the plus side, they boost U.S. manufacturing, cut trade deficits, strengthen national security, and give America leverage in global deals. But there’s a catch—higher consumer prices, pressure on U.S. companies, trade war risks, and market chaos.
Trump needs to tread carefully. If he plays it right, tariffs could be a game-changer. If not, they could backfire badly. The key? Smart strategy, not just tough talk.
Tariffs don’t just shake up trade—they can reshape economies. In the long run, they might strengthen China by pushing it to boost domestic manufacturing. And one thing’s for sure: market volatility is inevitable.
For TSMC and other supply-chain stocks, that means turbulence and buying opportunities. As tariff-driven headlines spark fear, I’m gearing up to take advantage by establishing long-term positions at lower levels within oversold stocks, according to my valuation model.
Is TSM a Buy, Sell, or Hold?
On Wall Street, the outlook on TSMC is very positive. Despite my concerns about the company’s overvaluation, analysts are generally bullish, with five Buy ratings, one Hold, and zero Sells. The average TSM price target is $243.67 per share, indicating a ~22% upside over the next 12 months.
TSM is a Valuable Company, but Not at Current Prices
TSMC is a world-class business with a remarkable market offering that is viable and irreplaceable. However, the stock remains an enigma, and despite its precious ability to generate moats and revenues, many risks are still lurking below the surface. Not to mention, the geopolitical risk is now apparent due to Trump’s tariff tantrum. Now may not be the best time to initiate new positions in TSM, with potential returns undermined by overly exuberant valuations.
As for Trump’s tariffs, the market has overreacted and is now correcting. I’m not too worried about tariffs weighing on any company significantly, given how diversified and multinational they tend to be. More broadly, I think Trump has the strategic foresight to avoid stifling the very business partners he needs to drive U.S. innovation and economic growth. If America wants to be great again, it will have to do so with China’s help because it cannot do so if China becomes a hindrance.
