Why Taiwan’s Semiconductor Manufacturing Stock Dropped Today

Actions of Taiwan Semiconductor Manufacturing (TSM -5.89%) were falling today as bearish momentum in the broader semiconductor sector appeared to weigh on the stock. There was also news from Japan that brought up a familiar bogeyman for TSMC.

As of 12:18 a.m. ET, the stock was trading up 5.8%, while Nasdaq Composite lost 2.3%, indicating a broader market pullback.

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Chip stocks are still volatile

Chip stocks like Taiwan Semi tend to go where Nvidia Shares of the artificial intelligence (AI) chip leader tumbled today, although there was no major company-specific news on the stock.

Instead, investors appeared to be questioning the sector’s valuations after Nvidia beat estimates in its second-quarter report last week, but by less than expected.

Taiwan Semi is sensitive to broader demand for semiconductors and AI components, so any sense that demand for the new technology will live up to the hype will weigh on the stock.

In addition, Japan and China are now grappling with restrictions on chip exports, and that could scare some investors, as Beijing’s military threat is seen as one of the biggest long-term risks to TSMC’s stock.

The US has pressured Japan to further restrict exports of advanced chip-making technology to China, and Beijing is now threatening economic retaliation, including withholding rare earth metals and other minerals needed for technologies such as car manufacturing.

Is TSMC a buy?

While Beijing remains a risk for TSMC, the manufacturing giant appears to be one of the safer stocks in the industry as the need for services will not go away no matter who wins the AI ​​race.

Recent results have also been strong for the company. July revenue was up 45%, and the company should provide an August update soon.

Right now, TSMC looks like a good candidate to buy on the dip. The business is growing fast, the valuation is reasonable and it has huge competitive advantages.