TSM's Global Expansion Strategy: Growth Enabler or Margin Risk?

Taiwan Semiconductor Manufacturing Company TSM, also known as TSMC, is aggressively expanding its global manufacturing footprint. In March 2025, it announced a new $100 billion investment in the United States, raising its total planned U.S. spend to $165 billion. This includes five wafer fabs, two advanced packaging plants, and a major research & development center. It’s one of the most ambitious expansions in chip history.

Construction on the first U.S. fab is done, and volume production is being sped up to meet soaring AI demand. Two more fabs are in the pipeline for later this year, pending permits, with the remaining facilities set to adopt advanced nodes based on customer needs. 

Apart from expanding in the United States, Taiwan Semiconductor Manufacturing is ramping up its fabs in Japan and Germany. It also plans to build 11 wafer manufacturing fabs and four advanced packaging facilities in Taiwan over the next several years.

This global push is clearly aimed at securing leadership in advanced chip manufacturing and addressing geopolitical concerns from customers who want supply chain diversification. However, this massive investment strategy is anticipated to hurt Taiwan Semiconductor Manufacturing’s profitability. TSMC expects gross margins to shrink 2-3% in 2025 as it ramps up new fabs in Arizona and Kumamoto, Japan. It also expects the gross margin dilution widening to 3-4% annually in later years due to the ramp-up of its other overseas fabs.

With $38-$42 billion in CapEx planned for 2025, the company’s execution and cost discipline will be critical for protecting margins. Nonetheless, Taiwan Semiconductor Manufacturing remains confident of sustaining a long-term gross margin above 53%.

How TSMC’s Rivals are Responding to the Global Fab Race

While Taiwan Semiconductor Manufacturing leads the global foundry market, Intel INTC and GlobalFoundries GFS are stepping up their efforts as the demand for localized chip manufacturing grows.

Intel is undergoing a major transformation under its IDM 2.0 strategy. With a planned investment of $100 billion for new fabs in the United States and Europe, Intel aims to compete directly with Taiwan Semiconductor Manufacturing in advanced chip production. Its upcoming foundry services, backed by U.S. government support, are designed to appeal to customers looking for geopolitically safer and more diversified supply chains.

GlobalFoundries is carving out its space in mature and specialized nodes. It is expanding capacity in the United States, Germany, and Singapore to meet demand for automotive, IoT, and industrial chips. As clients seek trusted, local manufacturing partners, GlobalFoundries stands to benefit.

TSMC’s edge remains strong, but both Intel and GlobalFoundries are making moves that could tighten the competitive landscape.

TSM’s Price Performance, Valuation and Estimates

Shares of Taiwan Semiconductor Manufacturing have gained 12.1% year to date compared with the Semiconductor - Circuit Foundry industry’s growth of 7.1%.

TSM YTD Price Return Performance

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From a valuation standpoint, TSMC trades at a forward price-to-sales ratio of 8.62X, in line with the industry’s average.

TSM Forward 12-Month P/S Ratio

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The Zacks Consensus Estimate for TSMC’s 2025 and 2026 earnings implies year-over-year growth of 31.82% and 15.82%, respectively. The estimates for 2025 and 2026 have been revised upward in the past 30 days, respectively.

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Taiwan Semiconductor Manufacturing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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