By Adam Clark

Taiwan Semiconductor Manufacturing stock has suffered this year amid worries about potential tariffs on semiconductors and its hefty investment in the U.S.

However, investors should be confident the chip manufacturer can thrive and will likely avoid being dragged into a rescue plan for Intel, according to J.P. Morgan.

American depositary receipts of Taiwan Semiconductor, or TSMC, are down 15% this year through Thursday's close. Apart from a wider move away from stocks exposed to the artificial-intelligence trade, other concerns have revolved around the potential imposition of tariffs on chips.

President Donald Trump has repeatedly suggested he is considering imposing tariffs on chips produced outside the U.S. and it isn't clear if TSMC would receive a waiver on such levies despite pledging a total of $165 billion in U.S. investment.

"We believe that a reciprocal tariff on direct Taiwan exports into the US is unlikely to have much effect on TSMC, given most of the exports are to other regions. The key impact would be if the U.S. were to impose [an] indirect tariff on semiconductors coming from Taiwan as a part of goods imported into the U.S.," wrote J.P. Morgan analyst Gokul Hariharan in a research note.

However, Hariharan noted TSMC's market position means it has the ability to adjust pricing to mitigate any effect on its earnings and that its investment likely lowers the chances of sector-specific levies on Taiwanese chip imports.

The other major question over TSMC in recent weeks has been whether it might participate in a joint venture to take over Intel's chip-manufacturing facilities, after reports it had approached Nvidia and Broadcom over such a possibility.

"Our base case remains that TSMC is unlikely to be involved in any Intel JV or 'rescue plan'...In our view, only under very extenuating circumstances or very lucrative financial rewards would TSMC enter into some kind of JV arrangement for Intel," wrote Hariharan.

It's a mixed message for Intel. It hurts hopes of an immediate cash infusion but investors positive on the stock might be happy that it will retain control of its foundry operations. Intel has said its 18A process is poised to give it a technological lead in chip manufacturing against TSMC as soon as this year.

That's not much of a threat to TSMC, according to Hariharan, who believes it is "highly likely" that Intel will need to outsource more manufacturing to TSMC due to the slower-than-expected entry of the 18A process into mass manufacturing.

Hariharan kept an Overweight rating on TSMC stock, with a price target of 1,500 New Taiwan dollars on its Taiwan-traded stock, which closed 0.6% lower at NT$952 on Friday. Its ADRs were up 0.1% in premarket trading.

Write to Adam Clark at adam.clark@barrons.com

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March 28, 2025 08:28 ET (12:28 GMT)

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