Chipmaker Taiwan Semiconductor Manufacturing Co—also known as TSMC—is committing an additional $100 billion investment in Arizona to satisfy growing semiconductor demand.
The announcement comes as TSMC reported that second-quarter profits surged more than 77 percent year over year to a record $22 billion, blowing past market forecasts. This represented the ninth consecutive quarter of double-digit percentage growth.
Artificial intelligence (AI) was the biggest driver of its better-than-expected earnings, accounting for two-thirds of revenue. This was followed by smartphones (22 percent) and the Internet of Things (5 percent).
TSMC could enjoy solid growth again in the third quarter, the company said. It expects revenues to climb to as much as $45.8 billion
To keep up with intensifying demand, it raised its capital spending forecast for the year by 14 percent, joining the growing list of companies boosting their capex projections.
As part of this initiative, an additional $100 billion will be invested in Arizona, bringing the state’s total commitment to $265 billion. The initial $165 billion investment was dedicated to constructing building plants in the Grand Canyon State, with six fabrication facilities.
“This is to build several or more semiconductor logic wafer fabs for two-nanometer [mass production] technologies, as well as advanced packaging fabs to support the strong multi-year demand from our leading U.S. customers,” TSMC chairman CC Wei said in an earnings call on July 16.
“We believe this investment will help to further foster the development of the U.S. semiconductor ecosystem, strengthen the supply chain, and support an increasing number of high-tech, high-paying jobs in the United States.”
More firms have been adding to their manufacturing investment goals in the United States.
Demand and Inflation
“The question everybody asks whenever the market is in a funk is whether there will be a return on investment from all of these expenditures, which at the end of the day, will total well over $1 trillion in the U.S. alone,” Paul Meeks, head of technology research at Freedom Capital Markets, told The Epoch Times in an emailed note.
“I think that’s what people are worried about.”
Another worry is that the AI infrastructure buildout is creating upward pressure on prices.
Data centers, for example, are devouring the world’s chip supply, leading economists to warn of “chipflation.” Makers of everyday goods—smartphones, laptops, and personal computers—are competing for available chip supplies. This has forced the likes of Apple, Microsoft, and Sony to raise their product prices.
Federal Reserve Chairman Kevin Warsh told lawmakers on July 15 that the AI investment book will likely increase costs over the next year.
“Will it increase measured prices over the course of the next 12 months? I suspect it will,” Warsh told the Senate Banking Committee. “Whether that’s inflationary or not, that’s up to the Federal Reserve—and we’re going to have something to say about that.”
But a one-time price change is not inflationary, he added.
Appearing at a July 15 event, New York Fed President John Williams stated that the world is in a “race between available supply and surging demand.”
“As a result, we are seeing sharp increases in the prices of semiconductors, power transformers, and other technology that is essential for the AI buildout,” Williams said in prepared remarks.
“Because these inputs are also used in other goods purchased by consumers and businesses, higher costs are starting to affect prices.”
June’s Consumer Price Index report indicates that these cost pressures are not showing up in the inflation data.
The index for information technology commodities—computers, peripherals, smartphones, and computer software—fell 0.9 percent last month following a 0.1 percent drop in May.
