Taiwan Semiconductor (NYSE:TSM) controls a large portion of the global chip-foundry market. However, what the company can’t control is the occurrence of natural disasters and the terrible fallout that may follow.
Furthermore, Taiwan Semiconductor cannot control how stock traders might react in the wake of a natural event that’s bound to disrupt global supply chains. In the wake of such an event, one might assume that TSM stock would drop 5%, 10% or more.
Yet, activity on Wall Street can be unpredictable sometimes. I wouldn’t go so far as to claim that Taiwan Semiconductor is impervious to extrinsic shocks, but perhaps the company is so dominant in the chipmaking industry that even a (literally) seismic event can’t shake Wall Street’s optimism.
Is 2024 the year of supply-chain disruptions?
If 2022 was the year of sticky inflation and 2023 was the year when artificial intelligence (AI) captured the market’s attention, will 2024 be remembered as the year of supply-chain disruptions? The year is still young, but it seems to be shaping up as an era of tragic disasters.
Recently, a bridge at the Port of Baltimore collapsed; this is a significant point of entry for vessels that help keep global supply chains operational. In terms of business activity, the Baltimore port collapse will have particularly detrimental effects on Detroit-based automakers like Ford (NYSE:F) and General Motors (NYSE:GM).
It’s only early April, but there’s already a second event that will constrain global supply chains. As they woke up this morning, Americans learned of the magnitude-7.4 earthquake in Taiwan that killed at least nine people and injured over 900.
This is a historic event in the worst possible way. Buildings collapsed and roads sustained damage as Taiwan suffered its most severe earthquake in 25 years. The world will certainly mourn the loss of life and assess the structural damage for generations to come.
There are also implications for chipmakers, of course. For example, the almighty NVIDIA (NASDAQ:NVDA) will undoubtedly experience operational setbacks.
Yet, the most direct impact will befall Taiwan Semiconductor, simply due to its location. The company’s chipmaking factories aren’t exactly at the center of the earthquake, but it still evacuated those factories.
Why should U.S.-based investors care about disruptions to Taiwan Semiconductor’s chipmaking operations? If you’re invested in NVIDIA or Apple (NASDAQ:AAPL) directly or through index funds, you’ll be affected because Taiwan Semiconductor is a major supplier to those companies. As Bloomberg pointed out, a “single vibration” from an earthquake in Taiwan “can destroy entire batches of the precision-made semiconductors” coming from Taiwan Semiconductor.
TSM stock holds surprisingly steady
Logic should dictate that a magnitude-7.4 earthquake in Taiwan would cause TSM stock to crater upon the news. Yet, it was surprising that Taiwan Semiconductor shares barely sustained any damage at all in early-morning trading on Wednesday.
First of all, investors shouldn’t expect Wall Street’s responses to events to be logical. Beyond that though, there are reasons why the market is willing to shake off this tragic and far-reaching natural disaster.
According to Barron’s, workers are already returning to Taiwan Semiconductor’s chipmaking factories. Additionally, the company’s “biggest manufacturing sites in Taiwan” all happen to be located on the “western side of the island, opposite of where the quake struck.”
Moreover, NVIDIA CEO Jensen Huang previously expressed his confidence in Taiwan Semiconductor’s geographic diversification. It’s fortunate for both NVIDIA and TSM that the latter has sites under construction outside of Taiwan — in Arizona and Japan.
With all of that, Intel (NASDAQ:INTC) recently disclosed that its chip-foundry business lost $7 billion in 2023. Intel seeks to rival Taiwan Semiconductor as a global chip manufacturer, so its financial problems are good news for TSM.
As a result, TSM stock barely budged despite the terrible loss of life and the ripple effects of supply-chain disruptions. A major takeaway for tech-hardware businesses is that geographic diversification is a necessity.
Is there a takeaway for TSM shareholders, though? One might conclude that Wall Street is callous and couldn’t care less about the human impacts of tragic events.
That may be true, but there’s more to the story than that. Quite possibly, the biggest takeaway is that solid businesses like Taiwan Semiconductor are, above all else, resilient. This suggests that it’s not a bad idea to consider a share position in TSM stock as evidently, the company and its loyal workers can withstand just about anything.
