Taiwan Semiconductor Shares Drop on Global AI Selloff, Tariff Concerns

Key Highlights:

* Taiwan Semiconductor Manufacturing Co. (TSMC) shares plunge by up to 6.6% after global selloff in AI-related stocks.
* DeepSeek's AI model raises competition concerns, impacting chip stocks.
* Tariff tensions between US and China also weigh on investor sentiment.

(Taipei, February 11, 2025) - Taiwan Semiconductor Manufacturing Co. (TSMC) shares experienced a significant decline today, dropping by as much as 6.6% at market open. The fall follows a global selloff in artificial intelligence (AI)-linked stocks last week, which dragged down the benchmark Taiex index by up to 4.4%.

The decline in TSMC shares is attributed to the news of DeepSeek's AI model, which has raised concerns among investors that it could rival leading US AI developers. The announcement led to a rout in chip stocks while Taiwan's market was closed for the Lunar New Year holiday.

Additionally, tariff tensions between the US and China are weighing on investor sentiment. US President Donald Trump has ordered general tariffs of 25% on Canada and Mexico, and 10% on China, which will come into effect on Tuesday. Trump has also threatened to impose sectoral tariffs on chips, metals, and drugs in the coming months.

"TSMC share prices already reflect the ADR price movement," said Ken Wong, Asian equity portfolio specialist at Eastspring Investments. "We're evaluating our positions on companies with Mexico production exposure, as those will be impacted the most at the beginning."

Hon Hai Precision Industry Co., a partner of Nvidia Corp., also saw a significant decline in shares, falling by 9.2%. Other Taiwanese partners of Nvidia, such as Inventec Corp., also experienced losses.

"Fund managers may reassess their portfolio exposure to AI considering recent developments," said Gary Tan, portfolio manager at Allspring Global Investments. "Investors may look outside tech hardware and consider countries beyond Taiwan and Korea for potential AI winners."

The pressure on TSMC, which makes up 39% of the Taiex index, may further accelerate foreign outflows from Taiwan. Overseas investors sold $1.26 billion of local shares in the tech-heavy market in January.

Despite the decline, analysts remain hopeful given TSMC's cutting-edge technology and reasonable valuation. The stock is currently trading at around 18 times forward earnings, in line with its five-year average.

"Low-cost AI models may drive broader adoption, boosting long-term growth for TSMC," said Charles Shum, an analyst at Bloomberg Intelligence. "While certain products may experience short-term headwinds, the demand for AI inference chips manufactured by TSMC remains strong."