Investing.com -- Taiwan Semiconductor Manufacturing (TW:2330) (NYSE:TSM) is making a historic bet on U.S. chip production with a total investment of $165 billion.
For TSMC investors, this investment is expected to shift about 25-30% of the company’s total revenue to U.S. operations by the early 2030s.
That represents a significant jump from the previous high single-digit percentage of revenue generated outside Taiwan before the expansion.
Bernstein analysts estimate that, with further global investments, TSMC could see around one-third of its total revenue generated outside of Taiwan in the next decade.
For the U.S. government and domestic chip customers, the investment is expected to provide a major boost to onshore semiconductor production.
Analysts estimate that the $165 billion investment could cover about 40-50% of the U.S. need for cutting-edge chips—those using N5/4 or more advanced nodes—by the early 2030s.
This marks a significant step toward greater self-sufficiency, a key strategic goal given concerns over supply chain resilience and geopolitical risk.
However, the financial burden of this expansion is substantial, Bernstein notes. The investment will likely weigh on TSMC’s margins, though the exact impact is difficult to quantify.
"Our sensitivity analysis nonetheless finds it’s not easy to keep the gross margin drag within 2-3%," analysts led by Mark Li wrote.
Higher costs in the U.S., particularly for construction and operations, make it difficult for TSMC to maintain its traditionally high profitability levels. This also explains why the company has been hesitant to scale up its U.S. presence until now.
TSMC is balancing its U.S. expansion with maintaining technological leadership in Taiwan. While its U.S. capacity will grow, the company plans to keep Taiwan slightly ahead in leading-edge technology, ensuring it remains the center of innovation.
At the same time, the Arizona fabs are expected to play a crucial role in the AI chip supply chain, with an estimated $20 billion allocated for advanced packaging, making the U.S. a key hub for AI production.
This figure stands in contrast to the typical $4-8 billion investment seen in advanced packaging, testing, and mask-making.
Analysts believe this level of spending should be sufficient to ensure the U.S. has adequate capacity for AI chip production, though their revenue simulations do not factor in the contribution from advanced packaging.
TSMC’s initial capital expenditure in the U.S. is significantly higher than in Taiwan, with construction costs estimated to be four to five times greater. However, the analysts expect costs to decline as operations scale, though they will likely remain above Taiwan’s levels.
The investment is seen as a strategic move to mitigate geopolitical risks and support valuation, though analysts caution that margin pressures could persist due to higher operating expenses.