Nvidia became the first stock with a $5 trillion market cap this past week, and the market sees almost endless opportunities for the artificial intelligence (AI) giant as it releases new, more powerful products.
Hidden in the background of Nvidia's success is partner Taiwan Semiconductor Manufacturing (TSM 0.95%). In fact, one of the updates CEO Jensen Huang gave at Nvidia's GTC summit in Washington D.C. last week was all about the company's Blackwell architecture graphics processing units (GPU) being produced in the U.S.
That was at Taiwan Semi's new Arizona location, and as good as the news was for Nvidia, it's at least as good for Taiwan Semiconductor.
Bringing production to the U.S.
Taiwan Semiconductor (also known as TSMC) has been in the process of bringing production over to the U.S. since 2020, when it first announced its investment in a new facility in Arizona. That journey is now complete, with the first Blackwell wafer, the building block of semiconductors, rolling off the production line two weeks ago. There are still multiple steps the products have to go through to become a fully usable chip.
Although the project began as a $12 billion deal, TSMC has added funds over time, and management recently said it was adding another $100 billion, bringing the entire investment to $165 billion. This includes three production facilities, two advanced packaging facilities, and a research and development center. Management called it "the largest single foreign direct investment in U.S. history."
Although production is just getting started, management anticipates producing tens of thousands of wafers monthly for multiple clients. Although Nvidia is its highest-profile client, especially these days, and its first U.S.-made wafer was for Nvidia's Blackwell chips, Taiwan Semiconductor has a large and varied client list. Companies like Nvidia are actually the designers of the chips, and they partner with Taiwan Semiconductor to manufacture them -- it's what's known as a foundry.
Taiwan Semi works with many clients to manufacture chips in several industries, not just artificial intelligence (AI). It makes the chips used in autonomous vehicles, gaming, smartphones, and more. It produces the chips for many Apple products, and Apple is actually expected to be its biggest client in U.S. production, with CEO Tim Cook committing to that in 2022.
NYSE: TSM
Key Data Points
A near-monopoly on the chip market
There are several reasons this is an important milestone for TSMC. Although President Donald Trump's new focus on tariffs is a crucial reason to have operations in the U.S., since this process began five years ago, management clearly had another agenda. At the time, it was also incentivized by President Trump in his first term in office.
Taiwan Semi makes about 92% of the advanced chips used in technology today in its Taiwan facilities. Moving production over to the U.S. for some of its clients has many benefits for the company besides easing its exposure to U.S. tariffs. It diversifies its locations, reducing the risk of having production in one region, and it also addresses the geopolitical risk of operating out of Taiwan. It also takes care of some of the production aspects for its clients, including speeding it up.
This is great news for U.S. clients, and it's great news for Taiwan Semiconductor investors. The runway is long as Taiwan Semi's market opportunity continues to expand as AI does, and working with a diverse client group means that it's not locked into the performance of any specific one. Rick Cassidy, who heads up U.S. operations, envisions Taiwan Semiconductor's U.S. footprint expanding over the coming years to meet growing demand.
The company has an edge in its field driven by explosive opportunities in AI, but it's not reliant on any specific technology, giving it multiple ways to grow over time. U.S. production is another way it's leveraging its dominant position to stay ahead of the game.
