How much profit will TSMC lose by building a factory in the US?

Trump's "Made in America" pressure is turning into a tangible profit cost for TSMC. While the world's largest foundry set yet another quarterly profit record, it also, for the first time, clearly quantified how much overseas expansion is eroding its gross margin—and this pressure is set to intensify over the next several years.

TSMC's net profit surged by 77.4% year-on-year this quarter, setting a new record. However, behind these stellar results, the expansion of its overseas fabs has begun to drag down overall profitability. TSMC CFO Wendell Huang stated on the earnings call that while gross margin exceeded previous guidance, it was offset by the dilution effect of overseas fabs. He also warned that as these overseas projects begin operations over the coming "years," profit margins will face further pressure.

Meanwhile, according to Nikkei, TSMC plans to hike prices for both advanced and mature process chips by as much as 10% in 2027, meaning some cost pressure may be passed on to customers.

Since Trump's return to the White House in 2025, TSMC has cumulatively announced investment commitments in the U.S. totaling $200 billion, including last week's newly disclosed $100 billion for advanced semiconductor manufacturing and packaging facilities. A White House spokesperson told CNBC, "The trillion-dollar investments by TSMC and other semiconductor companies are a direct result of Trump's trade and economic policies."

Political Pressure Drives Expansion, Costs Becoming Clearer

Since retaking office, Trump has continued to use tariffs to pressure companies not manufacturing domestically, and TSMC’s large-scale U.S. investments have accelerated against this backdrop.

U.S. Commerce Secretary Howard Lutnick said in a statement, "President Trump's leadership is driving companies to invest in American manufacturing. TSMC's additional $100 billion investment will create tens of thousands of U.S. jobs and bring advanced semiconductor manufacturing back to America."

However, building fabs in the U.S. has significantly increased costs. Morningstar senior equity analyst Phelix Lee told CNBC, "Overall, we estimate the cost of producing chips in the U.S. for TSMC is 20% to 50% higher than in Taiwan, depending on the timing of subsidies, tax credit realization, and other variable costs." He also expects customers to bear more of the additional costs stemming from increased production expenses.

Gross Margin Dilution Now Quantified, Still Within Controllable Range

TSMC has provided a specific forecast for the impact of overseas expansion on its gross margin for the first time: Huang stated that as overseas fab projects advance, the initial gross margin dilution is expected to be 2% to 3%, expanding to 3% to 4% in later stages.

Gil Luria, Head of Technology Research at D.A. Davidson, believes this dilution is still manageable at TSMC's current profitability level. TSMC's gross margin in the second quarter was 67.7%, a slight increase from 66.2% in the first quarter. "TSMC’s overall margins are extremely high, so this gap is something it can afford," Luria said.

Among other Asian chip manufacturers, companies like SK Hynix are also developing U.S.-based facilities, but TSMC's investment commitments far exceed its peers, making its cost exposure much more significant.

Monopoly Position Offers Buffer, Cost Pass-Through to Customers Likely

Despite margin pressure, TSMC’s dominance in the advanced process market provides crucial bargaining power.

Gartner vice president analyst Gaurav Gupta told CNBC, "What benefits TSMC is that it has virtually no substantial competitors." For this reason, "most of the rising costs will have to be borne by its customers—who will either seek supply chain diversification or are constrained by U.S. government policies mandating domestic chip sourcing."

Morningstar’s Phelix Lee also expects "Made in America" pressures to continue beyond Trump's term, but "how incentives and penalties are allocated remains unclear." He pointed out that the pandemic’s shock to global supply chains has prompted customers to proactively seek geographic diversification. "Customers are preparing for geopolitical, logistics, and other supply chain disruption risks."

TSMC said it continues to see a "multi-year demand trend" from customers, with U.S. expansion driven by strong client needs. Over the past 12 months, TSMC's market cap has surged more than 100%, buoyed by the artificial intelligence boom.