The stock rally of Taiwan Semiconductor Manufacturing Co. (TSMC) continues to surge, overshadowing geopolitical concerns. Foreign investors have increased their ownership of TSMC, supporting the company's claim that artificial intelligence (AI) will be its main growth driver this year. TSMC has a dominant position in manufacturing advanced semiconductors used for AI, holding over 90% market share, according to Pictet Asset Management. TSMC's stock performance rebounded last year after a decline in 2022 when Warren Buffett sold his $5 billion TSMC holdings, citing geopolitical tensions due to its location. In addition, the election of US-friendly president Lai Ching-te in Taiwan raised concerns as he has been described by Beijing as an "instigator of war. " However, despite the geopolitical risks, TSMC's strategic position in the semiconductor industry, coupled with the desire to establish local supply chains, has turned geopolitical factors into a favorable tailwind for the company, according to Bernard Ahkong, co-CIO at UBS O'Connor Global Multi-Strategy Alpha. The semiconductor industry is still in the early stages of its upcycle. The primary concern about TSMC revolves around its heavy dependence on chipmaking in Taiwan.

As the major producer of advanced logic semiconductors worldwide, any military tensions with China across the strait would significantly impact the global supply chain. As a leader in advanced chips, TSMC also holds a market share of over 50% in the overall foundry market, allowing the company to achieve or exceed its long-term growth targets of 15-20%, according to Pictet. The company's revenue increased by 9. 4% in the first two months, driven by accelerating demand for AI applications, which offset the slowdown in iPhone sales. TSMC's stock has more than doubled since October 2022, benefiting from gains in key customer Nvidia Corp. , and rose by 1. 5% on Monday, bringing the year-to-date rally to 29%. To address market concerns, TSMC is diversifying its operation bases. The company has announced plans to build a second fabrication plant in Japan, with its Kumamoto factory set to begin production this year. TSMC is also developing two advanced facilities in Arizona and one factory in Germany. Despite the geopolitical uncertainties, TSMC remains an essential component for exposure to AI and the wider semiconductor recovery, as there are few comparable companies with similar quality within emerging markets, said Gary Tan, a portfolio manager at Allspring Intrinsic Emerging Markets Equity. (Updates with TSMC's share moves on Monday. )