A Potential New Rival Wants to Undercut TSMC. Here's What Investors Need to Know.

Throughout the massive growth of artificial intelligence and the infrastructure that powers it, Taiwan Semiconductor Manufacturing (NYSE:TSM) has been a consistent winner. TSMC, as it’s known, is the world’s largest chip foundry, producing advanced semiconductors for Nvidia, Advanced Micro Devices, Broadcom, and many others.

TSMC holds a dominant 73% market share in the global foundry market, with second-place Samsung at only 7%. But a Japanese company, Rapidus, is taking aim at TSMC, with plans to mass-produce advanced 2 nm chips while undercutting TSMC on price.

TSMC started producing 2 nm chips this year, and they’re reportedly priced at $30,000 per wafer. Rapidus, which is reportedly in talks with more than 60 companies, would reportedly price its 2 nm process at about $21,000 per wafer, but the company doesn’t plan to enter production until 2027.

Can Rapidus really pose a threat to TSMC’s dominance? I don’t think so, and here’s why.

Image source: The Motley Fool.

TSMC's track record can’t be touched

It’s hard to overstate the impact that TSMC has had on the industry. Nvidia CEO Jensen Huang has repeatedly praised the company -- in a 2025 news conference, he was nearly gushing: "They are a world-class foundry and support customers of diverse needs. You can't overstate the magic that is TSMC," he said. And during a visit to Taiwan, he called TSMC “one of the greatest companies in the history of humanity.”

One reason for TSMC’s dominance is its open innovation platform, which the company uses to collaborate with customers in their chip designs. TSMC says that through its platform, the company has been involved with 85% of global start-up semiconductor prototypes. In all, TSMC produced more than 12,600 different products in 2025 using 305 separate process technologies.

TSMC also excels at making chips with more advanced process nodes, meaning that designers can pack more of them on individual chips to make them more powerful. In the first quarter, 25% of TSMC’s revenue came from building 3 nm chips and 36% came from building 5 nm chips. That’s a big change from 2023, when only 6% of TSMC’s revenue came from 3 nm chips and 33% came from 5 nm chips. It hasn’t yet reported 2 nm sales, but those will likely be discussed when TSMC files its second-quarter earnings on July 16.

TSMC’s revenue in the first quarter was $35.9 billion, up 40.6% from a year ago. And it forecasts revenue between $39 billion and $40.2 billion, with an operating profit margin between 56.5% and 58.5%.

The challenges facing Rapidus

Launched in 2022 with the backing of the Japanese government, Rapidus will be hard-pressed to break through TSMC’s dominance. Not even established chipmakers like Samsung or Intel have been able to gain meaningful market share.

Rapidus has only a pilot line in operation and plans to open a second fab next year as it ramps up. But it still needs to prove it can manufacture at scale while making a reasonable profit. Management already seems to be hedging on the possible price, stating in a news release that “semiconductor prices vary significantly depending on the specifications of the products ordered by semiconductor design companies and are subject to fluctuations due to factors such as exchange rates.”

So, even if Rapidus can match or just slightly undercut TSMC prices, would major companies have an incentive to switch suppliers? It’s unlikely.

Top semiconductor companies don’t choose their manufacturing partners based on price alone. TSMC has proven itself a reliable partner that delivers high-quality work at scale -- work that has helped Nvidia, Broadcom, AMD, and other chip companies soar to new heights. TSMC will have more than a year of mass-producing 2 nm chips before Rapidus can even get started.

Even with the backing of the Japanese government, it’s highly unlikely that Rapidus will pose a threat to TSMC, and investors shouldn’t be concerned about its undercutting strategy.

Patrick Sanders has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.