Investors may be wondering how the 2024 election results will affect Taiwan Semiconductor Manufacturing Co. (TSMC). (TSM 1.17%). The world’s largest and most advanced semiconductor manufacturer, the company is one of the most important companies in an important industry.
However, the incoming Trump administration has emphasized the growing need for domestic manufacturing. Therefore, it could become a target depending on the election results. So investors in semiconductor stocks should probably think twice about whether to buy before Inauguration Day on January 20th.
TSMC political situation
TSMC is in a geopolitically sensitive situation. China has targeted the company’s home country for takeovers in a political battle over the survival of its semiconductor industry. The impact of this conflict is felt across the globe, as approximately two-thirds of chip production currently takes place in Taiwan.
Only about 12% of chip manufacturing was done in the United States in 2020, down from about 40% in 1990, according to a study by the Semiconductor Industry Association (SIA). The situation is alarming enough that the Biden administration has approved approximately $53 billion in investments. Chip manufacturing subsidies under the CHIPS Act.
TSMC is opening a facility in Arizona, where the plant will cover just under 4% of the company’s total production. Domestic production likely won’t be enough to appease an administration that wants to restore America to its former glory as a manufacturer.
Why TSMC can profit anyway
Despite these political concerns, U.S. companies are likely to continue buying from TSMC for one important reason. That means you have no choice.
SIA claims that Taiwan accounts for about 92% of all wafer production capacity for cutting-edge chips. Cutting-edge technologies rely on these chips, including many desirable artificial intelligence (AI) applications. Therefore, not buying products from Taiwan means that the United States will fall behind technologically.
Other companies may provide limited assistance to administrators. Samsung and Intel are building factories in the U.S. Like TSMC, they will utilize ASML’s state-of-the-art extreme ultraviolet lithography (EUV) machines. However, TSMC maintains a technological lead over companies that also own EUV equipment, which will likely force chip companies and governments to continue doing business with TSMC.
Additionally, increasing production capacity is a process that takes years. Samsung expects production at its Texas factory to begin in 2026, and Intel likely won’t be able to start making chips in Ohio until 2027 or 2028. So the Trump administration will probably have to accept the industry’s status quo for the time being.
Additionally, investors have some incentive to invest in TSMC stock despite these risks. In the first nine months of 2024, revenue reached $63 billion, an increase of 32% compared to the same period in 2023. The company also saw slower growth in operating expenses relative to revenue. This means the company’s net income attributable to shareholders was $25 billion, an increase of 33% year-on-year.
Amid this earnings growth, TSMC’s P/E ratio of 30x is lower than its three largest customers, Apple, Nvidia, and Broadcom. That could make the stock attractive to some investors, despite the risks.
TSM PE Ratio Data by YCharts
Should investors buy TSMC stock before January 20th?
After all, TSMC stock is still likely to be bought by January 20th.
In fact, the Trump administration will likely want to expand manufacturing in the United States, which may seem detrimental to TSMC.
But TSMC is so essential to the technology industry and, by extension, the global economy, that political forces likely won’t push it into the corner. Even if the company matched or surpassed TSMC, it would take years to build the factories needed to reach potential production goals.
Finally, the stock is trading at a discount to its largest customers. So regardless of what the incoming administration thinks about the company, TSMC stock is likely to be a winner for investors.
Will Healy has a position at Intel. The Motley Fool has positions in and recommends ASML, Apple, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: November 2024 $24 short calls on Intel. The Motley Fool has a disclosure policy.
