Technology powerhouse Taiwan Semiconductor (NYSE:TSM) appears headed for a soft performance this week amid rumors of an operational expansion. Citing unnamed sources, the Wall Street Journal indicated that management seeks to widen its footprint in Japan amid geopolitical tensions. As well, tough U.S. export controls on advanced technologies to China may put TSM stock in a precarious position.
Per CNBC, which mentioned the WSJ report, Japan’s government signaled it would welcome Taiwan Semiconductor “to build beyond its initial manufacturing plant in the country, though no decisions have yet been made. The factory currently under construction in Japan is meant to focus on less-advanced chips used in automobiles, for example, but additional capacity could focus on more-advanced technology, the Journal reported.”
Undoubtedly, it’s an awkward moment for TSM stock. Earlier this year, U.S. House Speaker Nancy Pelosi made a trip to Taiwan, inflaming U.S.-China relations. China long considers Taiwan as part of its territory. In response to Pelosi’s visit, Beijing launched military drills and halted some Taiwanese imports.
Per Reuters, TSMC chairman Mark Liu said in a recent industry group event, “The U.S.-China trade conflict and the escalation of cross-Strait tensions have brought more serious challenges to all industries, including the semiconductor industry.”
TSM Stock Caught in the Crossfire
For TSM stock, the underlying company must navigate a complex geopolitical environment. On one hand, it remains an ally of the U.S. and western nations. But on the other hand, the west’s significant tensions with China impose business headwinds.
As an example, Bloomberg highlighted the case of Biren Technology, a privately-held Shanghai-based startup that specializes in advanced semiconductors. Biren represents a promising domestic competitor to Nvidia (NASDAQ:NVDA), which can no longer sell its most advanced AI products into China.
However, Biren produces chips below the restrictive threshold of the U.S. tech export controls, thus receiving a critical exemption. It’s also able to continue tapping Taiwan Semiconductor for production needs, a positive for TSM stock. Nevertheless, the broader implication is that should tensions worsen from here, expanded restrictions could crimp business and impact TSMC.
In addition, Taiwan Semiconductor itself is involved in operational expansions in China. Per a Financial Times report, the company secured a one-year license to continue ordering American chipmaking equipment for its expansion in the world’s second-largest economy.
Without an easy solution to this complex and geopolitically sensitive issue, TSM stock may incur growing doubts among investors.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
