TSMC: Chip manufacturing in the era of AI

In the spring of 2025, Taiwan Semiconductor Manufacturing Company (TSMC) had a market capitalization of around $820 billion. It was the most valuable manufacturing company in the world, tied with Tesla, and the 10th most valuable publicly traded firm overall. TSMC was the leader in semiconductor manufacturing, particularly in cutting-edge process nodes such as 3nm, 5nm, and 7nm. These nodes were essential for producing the latest high-performance computing chips used in AI applications. TSMC was the world's largest semiconductor foundry, commanding over 60% of global revenue in semiconductor manufacturing services. This dominant position gave TSMC significant influence over the semiconductor supply chain and turned it into a key supplier for many leading technology companies, including Apple, Nvidia, Broadcom, Qualcomm, and AMD, as well as a custom-chip supplier for Google, Amazon, and Meta.

TSMC provided its customers with access to state-of-the-art technologies and manufacturing processes, enabling them to innovate and develop new products across various sectors, including AI, cloud services, consumer electronics, automotive, and national defense and security. However, TSMC's position as a leading player in a critical industry also made it a factor in global geopolitics. Rising tensions between the U.S. and China, as well as China's complicated history with Taiwan, have placed TSMC at the center of discussions regarding trade policies and technology security.

TSMC's dominance in the semiconductor industry was accompanied by excellent financial performance. Since listing in 1994, it has delivered a 17.7% revenue CAGR and a 17.2% earnings CAGR; built a "fortress balance sheet" that endowed it with the semiconductor industry's highest credit rating; achieved a net income of around 40% of revenue, which is extraordinary for a manufacturing company; and generated strong enough cash flows to finance organic growth solely with internally generated funds.

However, geopolitical tensions between the U.S. and China, global supply chain disruptions caused by the pandemic, and the Trump administration's tariff-centric economic agenda in 2025 accelerated the movement to bring manufacturing capacity in critical industry sectors, including semiconductors, back home or close to home. Furthermore, the release of OpenAI’s ChatGPT ushered in the era of AI and triggered an “arms race” among big technology firms to procure leading-edge, high-performance computing chips. For the first time, these developments forced TSMC to invest in a massive capacity expansion outside Taiwan, facing operational, organizational, and cultural challenges along the way. Can TSMC maintain its technological dominance, robust growth, and excellent financial performance in this rapidly changing world?