Why Taiwan Semiconductor shares are up 4.1% today

Actions of Taiwan Semiconductor (NYSE: TSM) trading rose as much as 4.6 percent on Tuesday on news that the U.S. approved an additional $7.5 billion in investment for the company’s U.S. chip-making arm. Shares ended the day up 4.1%.

Investments in the US increase TSMC’s global presence

TSMC will invest an additional $7.5 billion in its US factories, bringing the total investment to $24 billion. The US investment is meant to address concerns about a lack of domestic supply of computer chips and continues the company’s global expansion.

Earlier this week, it was revealed that TSMC is in talks to invest in the UAE, and the company is expanding into Japan and Europe. After growing its business primarily in Taiwan, the company is on a path to expand globally, which could cost more than $100 billion.

Geographic diversification addresses investor concerns

One reason Taiwan Semiconductor has long traded for a relatively low multiple compared to other chip leaders is the geographic risk the company faces in Taiwan. As tensions between the US and China or Taiwan and China rise, so does the risk to TSMC’s business.

Diversifying where chips are made helps reduce business risk, and recent reports have shown that US chips are almost as profitable as those made in Taiwan. The company still doesn’t make its most advanced chips outside of Taiwan, but that investment continues.

Investors are cheering the slow and steady march toward a more geographically diversified business for Taiwan Semiconductor, and a decade from now, the company’s footprint could look very different than it does today.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Why Taiwan Semiconductor Shares Are Up 4.1% Today was originally published by The Motley Fool