The U.S. approved a big new investment in chip plants.
Shares of Taiwan Semiconductor (TSM 4.13%) jumped as much as 4.6% in trading on Tuesday on news the U.S. approved an additional $7.5 billion of investment for the company’s U.S. chip manufacturing subsidiary. Shares closed the day up 4.1%.
Investment in the U.S. grows TSMC’s global presence
TSMC will invest another $7.5 billion in its U.S. factories, which brings the total investment to $24 billion. The U.S. investment is intended to answer concerns about the lack of domestic supply for computer chips and continues a global expansion for the company.
Earlier this week, it was revealed TSMC is in talks to invest in the UAE, and the company is growing in Japan and Europe. After growing its business primarily in Taiwan, the company is on a path to grow globally that could cost over $100 billion.
Geographic diversification answers investor concerns
One of the reasons Taiwan Semiconductor has long traded for a relatively low multiple compared to other chip leaders is the geographic risk the company faces being in Taiwan. As tensions between the U.S. and China or Taiwan and China grow, the risk to TSMC’s business grows as well.
Diversifying where chips are made helps reduce the risk of the business, and recent reports have shown that U.S. chips are nearly as profitable as those made in Taiwan. The company still isn’t making the most advanced chips outside of Taiwan, but that investment continues.
Investors are cheering the slow and steady march to a more diverse geographic business for Taiwan Semiconductor, and a decade from now, the company’s footprint may look very different from how it does today.
Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.