TSMC

Tesla’s AI5 chip, crucial for its autonomous driving efforts, will be manufactured by Samsung in Texas and TSMC in Arizona. Tesla aims for “excess production” to power its data centers. While Tesla will still utilize Nvidia’s GPUs for AI model training, the AI5 chip, unveiled in 2024, represents a move towards vertical integration and custom silicon. Designed for Tesla’s specific needs, the AI5 aims for superior performance-per-dollar by removing legacy components, potentially challenging Nvidia’s dominance in the AI chip market.

U.S. stocks rose Thursday, boosted by Taiwan Semiconductor Manufacturing’s (TSMC) optimistic revenue forecast, offsetting concerns about escalating U.S.-China trade tensions. TSMC’s strong earnings, driven by demand for AI-related high-performance computing, benefited Nvidia and Broadcom. Starbucks also gained on positive China valuation revisions, while Salesforce surged following a bullish analyst presentation highlighting AI integration and CRM market share growth.

TSMC reported a strong Q3, driven by the thriving AI chip market. Profit surged 39.1% year-over-year, with revenue exceeding expectations at NT$989.92 billion. Net income also surpassed estimates, reaching NT$452.3 billion. The company’s HPC division, fueled by AI and 5G infrastructure demands, was a key growth driver. Advanced chips using 7-nanometer or smaller technologies comprised 74% of wafer revenue, highlighting TSMC’s technological lead in miniaturization. TSMC’s performance underscores its critical role in the global semiconductor supply chain and the AI revolution.

The U.S. is in talks with Taiwan to shift towards a “50-50” split in semiconductor production, aiming to mitigate reliance on Taiwan’s dominance (over 90%) in the global market and bolster domestic chip manufacturing. Citing national security and supply chain resilience, the U.S. seeks to produce roughly half its semiconductor needs domestically, requiring substantial investment (>$500B). While Taiwan’s TSMC, a key player, invests in the US, the move challenges the “Silicon Shield” theory and reflects concerns about geopolitical tensions and potential vulnerabilities.

Global semiconductor stocks surged after Nvidia announced a $100 billion investment in OpenAI, signaling a strong commitment to AI infrastructure. TSMC and SK Hynix saw significant gains. European markets mirrored the positive momentum, with STMicro and Infineon rising. However, ASM International’s revenue shortfall impacted other equipment manufacturers like ASML. Analysts remain bullish on the long-term outlook for chip equipment vendors due to strong demand for AI-related technologies.

The U.S. government revoked TSMC’s export waiver (VEU status) for its Nanjing, China, facility, requiring individual licenses for U.S.-origin chipmaking equipment shipments. SK Hynix and Samsung also lost VEU privileges. This aims to close a “Biden-era loophole” on foreign-owned fabs in China and tighten control over technology flows, limiting China’s chip production capabilities and ability to expand their supply chain footprint. While TSMC anticipates limited financial impact, this move underscores a broader U.S. strategy to reshore manufacturing and restrict China’s semiconductor advancement.

TSMC is reportedly phasing out Chinese chipmaking equipment in its most advanced 2nm fabs due to potential U.S. regulatory restrictions, including the proposed “Chip Equipment Act.” This act could prohibit chipmakers receiving U.S. funding from using equipment from “foreign entities of concern,” encompassing Chinese vendors. This move reflects growing geopolitical concerns impacting the semiconductor industry, with TSMC focusing on diversifying its supply chain and increasing localized procurement of materials in both Taiwan and the U.S. to enhance resilience.

The U.S. CHIPS Act, designed to boost domestic semiconductor manufacturing, may involve the government taking equity stakes in companies like Intel, TSMC, and Samsung in exchange for subsidies. While not actively pursued now, this approach aims to ensure commitment to significant U.S. investments. TSMC, facing substantial U.S. investments, is reportedly prepared to forgo subsidies rather than accept forced equity, viewing the relatively small subsidy amount as less critical to its overall plans.

A significant IP breach at TSMC, involving employees and possibly its 2nm process, has led to a legal battle. Tokyo Electron (TEL) confirmed dismissing an employee and attempted appeasement, sending executives to TSMC. However, TSMC rejected TEL’s efforts and initiated legal action, signaling a firm stance against data theft. TSMC will implement internal disciplinary measures. The incident underscores the importance of intellectual property protection in the semiconductor industry.

A recent leak at TSMC, impacting its 2nm process technology R&D and Fab 20 in Hsinchu, involves nine individuals and has sparked industry debate. The breach, detected internally, highlights the challenges of protecting valuable IP. Intriguingly, the leak involves Tokyo Electron (TEL), a partner of Rapidus, intensifying competition in advanced semiconductor manufacturing. TSMC had implemented rigorous security measures, including iPhone replacements and U.S. security expert recruitment. Despite CEO C.C. Wei’s confidence, the leak originated from TSMC’s headquarters, emphasizing the persistent threat of internal security breaches.