Why investors need to take Taiwan chipmaker risk 'seriously'

Semiconductors are at the heart of the AI revolution, and with chipmakers leading the charge, it raises questions about the implications for nations reliant on international chip manufacturers. Christopher Miller, assistant professor of international History at Tufts University, joins Market Domination Overtime to discuss the landscape of chip manufacturing.

Miller notes that the leading chipmakers in the US heavily depend on the semiconductor giants in Taiwan, stating, "it does present a risk that I think investors have to take seriously." With the surge in chip manufacturing investments occurring in the US, Miller believes that "it won't be complete self-sufficiency, but it does mean a lot more resilience, especially in case of a political crisis in East Asia."

When it comes to China, Miller suggests that "China is probably going to be close to self-sufficient" in creating chips near the end of the decade. However, he points out that China faces challenges in manufacturing high-end chips, as "right now it's all in Taiwan."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Angel Smith

Video transcript

And it's a great time to have you Chris because listen, we, we've been talking a lot um about NVIDIA, they reported they beat investors, loved it.

Um And when we talk about NVIDIA, Chris, you know, a theme that does come up is we know that TS MC of course, is actually making uh Jensen Wang's chips and, and in Taiwan, Taiwan on AAA real, of course, geopolitical hot spot.

And I'm curious, Chris for, you know, for chip investors who are listening right now, should they think of that as a kind of long term risk, Chris that they need to be aware of, not just your if you're NVIDIA, but in a lot of names that rely on TS MC actually make those semiconductors.

Well, I think you're right that almost the entire US chip industry, all of the leading chip design firms rely quite heavily on uh production in East Asia and especially in Taiwan, you know, it could be a long term risk, could be a shorter term risk.

Nobody really knows.

But the fact that the entire US tech sector is dependent on one pretty small island.

It does present a risk that I think investors have to take seriously.

Um And uh by the same token, there are implications for China itself when it comes to where its chips are being designed, particularly advanced chips, the kinds like nvidia designs, right?

They're trying to sort of foster a homegrown advanced chip making industry.

Can they successfully do that?

Well, you're certainly right that China is focused on this issue.

We've seen China make a lot of strides that the lower and the middle range of the market where China is probably gonna be close to self sufficient in producing lower end chips by the end of the decade, if not slightly sooner, where they face real challenges is at the high end, the most advanced processors like those that are used in smartphones are used for A I applications and China's got some volume of relatively advanced production capacity.

But when it comes to the most advanced manufacturing right now, it's all in Taiwan and that represents a roadblock for Chinese firms that want to compete with nvidia and A I chips or uh with other companies and PC processors or in smartphones.

And how much Chris, I mean, obviously the US government listen, um I is telling chip makers you're not, you're not sending your latest and greatest to China.

But how much is that really sort of hampering China's ambitions to be a chip powerhouse?

You know, I think it's certainly a challenge for China when it comes to access to chip making tools like the lithography equipment produced by a SML Netherlands, which in its most advanced versions can't be sold to China at all.

That's a real hindrance to China's ability to manufacture more advanced chips.

I think it's more uncertain whether the restrictions on the sale of A I process to China is really slowing down China's A I ecosystem.

It's true that we hear voices from China.

Uh people who say they face deficits in getting access to all of the A I processors that they want.

But you actually do the same things from American companies as well who are also struggling to get their hands on all the nvidia chips that they'd like to buy.

So I think it's less guaranteed that those controls are actually having the desired effect.

And Chris just quickly the other side of the tariffs and restrictions put on China are the incentives here in the US for building homegrown chip production.

I know we're years away from that really being finished.

But once it's completely, how resilient will it make chip supply chains?

We're seeing a ton of investment happening in the chip industry in the US, multiple different companies, both US and foreign in a series of really tremendously large uh projects.

And this is going to make a major difference in uh the US chip industry will be producing a lot more chips uh domestically, it won't be complete self sufficiency, but it does mean a lot more resilience, especially in case of a political crisis in East Asia.

Chris.

Thanks so much for your perspective.

Really helpful.