Taiwan Semiconductor Manufacturing Co. (NYSE: TSM) recorded strong results for its fiscal Q3 on Monday, beating experts’ forecasts for both the top and the bottom line.
The company’s management attributed much of the quarterly strength to continued demand for advanced chips powering artificial intelligence (AI) and high-performance computing.
TSMC stock has been a lucrative investment over the past six months. At the time of writing, it’s up more than 100% versus its year-to-date low in April.
Still, investors are recommended caution in buying TSMC into the post-earnings strength primarily because of recent geopolitical developments: President Trump has announced sweeping new tariffs on Chinese imports and export controls on US-developed software, effective November 1.
Why Trump tariffs remain an overhang for TSMC stock
Though TSMC is headquartered in Taiwan, its operations are deeply intertwined with the US tech.
The firm relies on American software tools, such as electronic design automation (EDA) platforms from Synopsys and Cadence, as well as critical manufacturing equipment from firms like Applied Materials and Lam Research.
If the new export controls restrict access to these tools, even indirectly, TSMC’s ability to produce cutting-edge chips could be compromised.
The situation becomes more complex if Washington begins scrutinizing third-party fabs that serve Chinese clients.
While no immediate restrictions have been placed on TSMC, the evolving policy landscape introduces uncertainty into its supply chain, especially for its most advanced nodes.
Over time, this could evolve into a major overhang for TSMC shares.
How else can China exposure hurt TSMC shares
TSMC’s revenue stream includes a sizable contribution from Chinese customers, including chip designers and device makers like Huawei.
If the US expands its export restrictions to cover chips manufactured by non-Chinese firms but destined for China, TSMC could face order cancellations or compliance challenges.
This scenario echoes the 2020 fallout with Huawei, when TSMC was forced to halt shipments of advanced chips due to US sanctions.
With Beijing ramping up its own export controls on rare earth minerals in 2025, the risk of tit-for-tat escalation looms large.
All in all, TSMC’s exposure to Chinese demand, while lucrative, could become a liability if geopolitical tensions continue to rise.
Should you invest in TSMC today?
Despite these risks, TSMC remains a linchpin in the global semiconductor ecosystem – and a strategic asset for the United States.
Washington has invested heavily in bringing TSMC’s manufacturing capabilities to Arizona, aiming to reduce reliance on East Asian supply chains.
This dual role, as both a potential target of trade friction and a beneficiary of US industrial policy, offers a layer of protection.
As President Trump pushes for tighter controls, carve-outs or all-out exemptions for TSMC’s US operations may emerge.
In short, investors must balance strong fundamentals against rising geopolitical headwinds.
TSMC’s third-quarter earnings sure demonstrate resilience, but the road ahead may be more volatile than the number suggest.
Investors should also note that Wall Street’s consensus rating on TSMC stock remains at “buy” – but its mean target of about $300 does not indicate any meaningful upside from here.
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