Single Points of Failure
TSMC: The Most Important Company You Don't Own
One company in Taiwan fabricates the chips that run every AI model on Earth. Your entire AI portfolio depends on a factory 100 miles from mainland China.
The Monopoly
One Factory Runs the World
Taiwan Semiconductor Manufacturing Company makes chips for Apple, NVIDIA, AMD, Qualcomm, and Broadcom. It fabricatesManufactures chips in specialized factories called fabs. TSMC builds other companies' designs into silicon. the processors inside every iPhone, every data center GPU training an AI model, and every advanced chip in the US military's supply chain.
TSMC's share of the global advanced chip market is not a plurality. It is near-total dominance.
92%
TSMC's share of chips made at 7nm and below
Samsung holds most of the remaining 8%. Intel's foundry business is years behind. No other company on Earth can manufacture the transistors that AI requires at production scale.
Every NVIDIA H100 and B200 is manufactured by TSMC. Every Apple M-series chip. Every AMD EPYC server processor. These companies design their chips. TSMC builds them. Without TSMC, the designs are blueprints with no factory.
The AI boom is a TSMC boom. The company's revenue grew 34% in 2024 to $90 billion. Its advanced packaging capacity for AI chips is sold out through 2026. Every hyperscaler is competing for allocation on TSMC's production lines.
The Dependency Chain
Who Cannot Function Without TSMC
Estimated Revenue Dependent on TSMC Fabrication
Percentage of each company's core products manufactured by TSMC, 2025
NVIDIA 100% dependent, Apple 100%, AMD 100%, Qualcomm 95%, Broadcom 80%, Google TPU 100%, Amazon Trainium 100%
Even the companies building custom AI chips to escape NVIDIA's pricing power depend on TSMC to manufacture those chips. Google's TPUs, Amazon's Trainium, Microsoft's Maia: all TSMC customers. The escape route from the NVIDIA tax runs straight through Hsinchu, Taiwan.
If TSMC's fabs went offline tomorrow, the entire AI industry would halt within weeks. There is no backup. Samsung cannot absorb the volume. Intel cannot match the process nodes. The supply chain has a single point of failure, and it sits on an island in the Taiwan Strait.
The Geopolitical Risk
100 Miles From the Chinese Mainland
TSMC's most advanced fabs are in Hsinchu and Tainan, Taiwan. The Taiwan Strait is 100 miles wide. China considers Taiwan a breakaway province and has not ruled out reunification by force. The US has committed to defend Taiwan but has not said what that defense looks like.
A Chinese blockade or invasion of Taiwan would shut down TSMC's production. This would affect not just AI but the entire global technology supply chain. Smartphones, cars, medical devices, military hardware.
$2.4T
Estimated first-year GDP impact of a Taiwan crisis
-40%
Projected semiconductor stock decline in blockade scenario
These are not hypothetical numbers. Multiple think tanks and financial institutions have modeled Taiwan disruption scenarios. Bloomberg Economics estimated a Taiwan conflict could cost $10 trillion in global GDP over the first three years. The semiconductor sector would take the hardest immediate hit.
The risk is not binary. It exists on a spectrum. A full invasion is the extreme case. More likely scenarios include increased military pressure, trade restrictions, or a partial blockade. Each of these degrades TSMC's ability to operate at full capacity and ship to global customers.
Escape Velocity
Can the World Reduce Its TSMC Dependency?
01
TSMC Arizona
TSMC is building six fabs in Phoenix, Arizona. The first began producing 4nm chips in early 2025, with 3nm production targeted for 2027 and 2nm following after that. Total committed investment: $165 billion. The problem: these fabs will produce a fraction of TSMC's Taiwan output. The Arizona complex will handle roughly 5% of TSMC's total wafer capacity when fully operational. It reduces the geopolitical risk at the margins. It does not eliminate it.
02
Intel Foundry Services
Intel is spending $100 billion to build foundry capacity in the US and Europe through its Intel Foundry division. The goal is to offer TSMC-competitive manufacturing by 2027. Intel's 18A process nodeThe manufacturing technology used to build a chip. Smaller numbers mean better performance. is the test case. If it works, Intel becomes the only Western alternative for advanced chip manufacturing. If it doesn't, the TSMC monopoly extends into the 2030s. Early reports are mixed. Yield rates are the key metric to watch.
03
Samsung Foundry
Samsung has foundry capacity at 3nm, but yield rates have lagged TSMC's by 15-20 percentage points. Lower yields mean more wasted silicon and higher costs per chip. NVIDIA briefly considered Samsung for some products, then returned to TSMC. Until Samsung closes the yield gap, it remains a secondary option for the most demanding workloads.
04
CHIPS Act & EU Chips Act
The US CHIPS Act allocated $52.7 billion to domestic semiconductor manufacturing. The EU Chips Act commits $47 billion. These subsidies accelerate construction timelines but cannot compress the 5-7 year cycle to build and qualify a new fab. Money is necessary but not sufficient. The constraint is physics, not funding.
The honest timeline: meaningful geographic diversification of advanced chip manufacturing is a late-decade story. Through 2028, TSMC's Taiwan fabs remain the irreplaceable center of the AI supply chain.
The Investment Case
Should You Own TSMC?
TSMC trades at about 22x forward earnings. For a company growing revenue at 30%+ with 55% net margins and a monopoly on the most important technology input of the decade, that multiple looks low. The reason it looks low is Taiwan.
The Bull Case
TSMC has the strongest competitive position of any company in the semiconductor supply chain. AI demand is accelerating. Advanced packaging (CoWoS) is sold out for years. Revenue will grow 25-30% annually through 2027. The geopolitical risk is real but overstated by the market. A China-Taiwan conflict would be catastrophic for both sides. TSMC's monopoly is its own deterrent. At 22x earnings with this growth, the stock is cheap if peace holds.
The Bear Case
Every dollar of TSMC's value depends on factories in a geopolitical hot zone. The risk is unhedgeable. If tensions escalate even short of war, export controls and supply restrictions could impair TSMC's ability to serve all customers. Intel Foundry could become competitive by 2028, eroding TSMC's pricing power. The stock is cheap for a reason. The market is pricing in a non-trivial probability of a very bad outcome.
Here is the way I think about it. TSMC is a toll road on the AI economy with a geopolitical time bomb underneath it. The toll road is the best in the world. The time bomb may never go off. But if it does, there is no airbag.
A 5-8% portfolio allocation lets you participate in TSMC's growth without making your retirement dependent on the Taiwan Strait staying calm. Position sizing is the entire game here.
92%
Ninety-two percent of the world's advanced chips flow through one company, on one island, 100 miles from a superpower that claims it. Know the risk before you size the position.
How I Built This
Market share and revenue figures come from TSMC's quarterly earnings, industry research from TrendForce and Counterpoint, and company filings from TSMC's customers.
Advanced Chip Market Share (92%)
TrendForce Q4 2024 + TSMC 10-K
Defined as chips manufactured at 7nm process node or smaller. TrendForce estimates TSMC at 90-92% depending on the quarter. Samsung holds 6-8%. Intel Foundry is below 1% at these nodes as of 2024. The 92% figure is the upper end of the range. At 90%, the structural argument is identical.
TSMC Revenue Growth
34% YoY in 2024 (TSMC earnings)
Full-year 2024 revenue was NT$2.89 trillion (~$90B USD). Growth driven primarily by AI chip demand (HPC segment +58% YoY). 2025 guidance projects 20-25% growth. The 30%+ forward figure used in the bull case reflects analyst consensus for AI-driven acceleration.
Taiwan Crisis GDP Impact ($2.4T)
Bloomberg Economics, 2024
Bloomberg's model estimates first-year global GDP loss from a Taiwan military crisis at $2.4 trillion, scaling to $10 trillion over three years. The RAND Corporation's 2023 model estimated $2.5 trillion. These figures include direct supply chain disruption, financial market contagion, and trade rerouting costs.
TSMC Arizona Capacity
~5% of total wafer output at full build-out
TSMC's total monthly wafer capacity across all Taiwan fabs is approximately 1.5 million 12-inch equivalent wafers. The Arizona fabs are planned for roughly 100,000 wafers per month in the initial phases. This is meaningful for US supply chain resilience but does not meaningfully reduce Taiwan concentration for global supply.
Jesse Walker has been an individual investor for 30 years. Before that, he was a poker professional, which is where he learned that the best decision and the best outcome aren't always the same thing. He writes about financially navigating the uncertainties of AI.