To The Moon

$Taiwan Semiconductor Manufacturing(TSM)$, the crown jewel of Taiwan’s tech industry, is at the forefront of the global semiconductor supply chain. Recently, Taiwan’s Ministry of Economic Affairs (MOEA) made headlines by announcing that TSMC is prohibited from producing its cutting-edge 2-nanometer (nm) chips outside of Taiwan. On the surface, this may seem like a restrictive move that limits TSMC’s international expansion. However, I believe it’s a calculated and strategic decision that reflects the intricate balance of power in global geopolitics, technology, and national security. Here’s why this move is not only smart but also pivotal for Taiwan's defense.

Minister of Economic Affairs J.W. Kuo speaks at a meeting of the legislature’s Economics Committee in Taipei yesterday.

The semiconductor industry is often referred to as the “new oil” because of its vital role in powering modern technology. From smartphones to AI data centers, everything runs on semiconductors. TSMC, as the world's largest contract chipmaker, has a dominant market share, manufacturing chips for tech giants like $Apple(AAPL)$, $NVIDIA Corp(NVDA)$, $Advanced Micro Devices(AMD)$, and even Google’s TPUs. This positions TSMC as an irreplaceable player in the tech ecosystem.

By mandating that TSMC’s most advanced chips must be produced on Taiwanese soil, the government is effectively ensuring that Taiwan remains a linchpin in the global tech supply chain. This move forces major powers, particularly the United States, to prioritize the security and stability of Taiwan. Without access to TSMC’s latest chip technology, companies like Apple, Google, and NVIDIA would face significant disruptions, potentially costing billions of dollars and slowing the advancement of AI and other critical technologies.

China has long expressed interest in reuniting Taiwan with the mainland, and tensions across the Taiwan Strait have escalated in recent years. However, a direct military confrontation comes with enormous risks—not just politically, but economically as well. The "Silicon Shield" theory suggests that Taiwan’s dominance in semiconductor manufacturing acts as a deterrent against invasion because any conflict would severely disrupt the global tech industry.

By keeping 2nm production exclusively in Taiwan, the government is enhancing this Silicon Shield. If TSMC were to establish equivalent cutting-edge fabs in the U.S. or other countries, it would diminish Taiwan’s unique role in the semiconductor supply chain. The U.S. might then deprioritize Taiwan's security, focusing instead on protecting those fabs abroad. However, by centralizing its most advanced capabilities at home, Taiwan ensures that the U.S. has a vested interest in its defense. This strategy essentially leverages the world's dependence on TSMC as a geopolitical bargaining chip.

While there are other semiconductor competitors, like $Intel(INTC)$ and Samsung, none have matched TSMC’s consistency and technological leadership in advanced nodes. Even Google, which designs its own Tensor Processing Units (TPUs), relies on TSMC for fabrication. TSMC’s expertise in high-performance computing and its ability to scale production make it the go-to choice for top tech firms.

This dependency creates a domino effect: if TSMC’s production were disrupted, it would send shockwaves throughout the tech industry, affecting everything from consumer electronics to cloud computing services. As a result, protecting TSMC’s operations becomes a top priority not just for Taiwan, but also for the U.S. and its allies. It’s no longer just about defending a small island in East Asia; it’s about safeguarding the backbone of the digital economy.

There’s no denying that the AI boom has intensified the competition for cutting-edge chips. NVIDIA’s GPUs have become the de facto standard for AI applications, but rivals like Google, through its custom TPUs, are making significant strides. However, whether it’s NVIDIA, Google, or even Microsoft developing new chips, they all share one thing in common: they rely on TSMC’s foundry services.

This underscores the strategic importance of TSMC in the global AI arms race. If TSMC were to shift its most advanced production capabilities abroad, it could inadvertently level the playing field, allowing rivals to potentially catch up without the complexities of dealing with Taiwan’s unique geopolitical risks. By keeping 2nm production at home, TSMC maintains its technological edge while reinforcing its home country’s importance in the global semiconductor landscape.

The U.S. has already made significant investments in reshoring semiconductor production, with TSMC building a 4nm fab in Arizona. However, by restricting 2nm production to Taiwan, the MOEA ensures that the most advanced technology remains out of reach for these new U.S. fabs. This move compels the U.S. to continue its support for Taiwan’s security, as losing access to TSMC’s cutting-edge capabilities would be a massive setback for American tech firms and the broader economy.

It’s a brilliant strategic play. By leveraging TSMC’s technological dominance, Taiwan effectively binds its security interests with those of the U.S. The message is clear: if you want access to the best chips in the world, you must protect the source.

TSM Daily Chart

Looking at the chart, the price breakouts from a downtrend line and definitely has the potential to retest the ATH at around 212.

Conclusion

In my view, Taiwan’s decision to keep TSMC’s 2nm production at home is a masterstroke in strategic thinking. It underscores Taiwan’s unique leverage in the global semiconductor industry and strengthens its position in the geopolitical chess game against China. At a time when tech has become the new battleground, this move solidifies Taiwan’s role as an indispensable player and compels the U.S. and its allies to prioritize its security.

Question for Readers: Do you think Taiwan’s strategy of keeping TSMC’s most advanced production capabilities onshore will be enough to deter potential threats, or does it put too much risk on a single location?

@MillionaireTiger @Tiger_comments @Daily_Discussion @CaptainTiger @TigerSG

Disclaimer: This is a general analysis and not financial advice. Always conduct your own research before making any investment decisions.