TSMC faces slower October sales as AI chip hype fades

TSMC, Taiwan Semiconductor Manufacturing Co., hit a speed bump in October. After riding high on the AI wave for months, the company reported a 29.2% growth in sales last month, its slowest since February.

TSMC’s October sales hit NT$314.2 billion, roughly $9.8 billion, but it did not match the pace from previous months. For a company that’s been outpacing 30% growth month after month, this is the first real signal that the AI frenzy might be cooling down. 

Analysts still expect sales to climb 36.1% in the last three months of the year, but the excitement around AI isn’t quite as electric as it was a few months ago.

Now, if you’re thinking, “Why is TSMC such a big deal?”—here’s the answer. TSMC isn’t just another tech company; it’s the tech company for high-end chip manufacturing. It makes chips for giants like Apple and Nvidia, and nearly every advanced AI application you can imagine runs on hardware stamped with the TSMC logo.

So when its sales dip, people pay attention. The company’s stock is up more than 80% this year alone, but this dip has people wondering if AI’s business potential might not be as bulletproof as the hype suggested. 

Investors have been glued to TSMC’s monthly sales, treating the company’s performance as a litmus test for the AI hardware market. But let’s get one thing straight: TSMC is still making money hand over fist.

Taiwan’s soaring power costs take a bite out of TSMC’s margins

Beyond AI demand, TSMC has another headache on its hands—energy prices. Taiwan’s power bills have been going up, and TSMC is feeling it. Following a series of energy price hikes, the company now faces some of the highest electricity costs in the country.

Taiwan Power Company, the state-owned utility, has been raising prices, partly because fossil fuel costs shot up after Russia’s invasion of Ukraine. Since 2022, Taiwan has bumped electricity prices four times, and it’s not just the average citizen feeling the pinch. Big industrial players are getting hit the hardest.

Back in April, Taiwan jacked up electricity prices by an average of 11%, but TSMC and other large-scale manufacturers got hit with a whopping 25% hike. Then, just last month, the government froze rates for households and certain smaller businesses.

But guess what? TSMC and other big players in thriving industries were slapped with another 14% increase. “Basically, the price has doubled in the past few years. So next year, we think that the electricity price for us in Taiwan will be the highest in all the regions that we operate,” said Wendell Huang, TSMC’s Chief Financial Officer, to investors.

Imagine that—TSMC is paying more to keep the lights on in Taiwan than it does in its U.S. and Japan plants. Soon, it’ll also have to power its upcoming factory in Germany, but Taiwan’s soaring costs will stand out.

Electricity costs are now one of TSMC’s biggest local expenses. Taiwan used to keep power prices cheap for industries, incentivizing growth, but that’s changing. Until recently, Taiwan’s industries paid less than households for power—an unusual setup by global standards.

However, in the past two years, that trend has flipped. According to Jheng Rui-he, a senior analyst at Taiwan’s Chung-Hua Institution for Economic Research, “Electricity prices for households used to be higher than those for industry, as in most developed economies, to reflect the higher cost of supplying households due to the need for conversion from high to lower voltage.” Not anymore.

TSMC deals with Taiwan’s power struggles amid a global energy shift

Taiwan’s power problems go beyond high prices. The country is racing to build renewable energy sources, but it’s got a long way to go. Right now, Taiwan still relies on coal and liquefied natural gas for over 80% of its energy.

While it has ambitious plans to generate up to 30% of its electricity from renewables by 2030, it’s been slow going. For years, nuclear power helped keep Taiwan’s grid stable, providing half of its energy back in the 1980s.

Today, nuclear accounts for only 6%, and Taiwan plans to phase it out completely by next May when the last reactor is set to shut down. Renewables like wind and solar are only providing about 9.5% of Taiwan’s electricity right now, so the grid is heavily reliant on fossil fuels.

What does this mean for TSMC? Well, it’s not an existential crisis, but it’s not nothing either. The company expects these power price hikes to chip away at its gross margin by about 1% next year. That’s small potatoes when you consider TSMC’s gross margin is around 60%, but it’s another line item in a long list of rising costs.

In Taiwan’s electronics sector, power costs only make up about 1.5% of operating expenses. But the bigger issue is the lack of a stable energy future, which is critical for TSMC’s power-hungry production process.

The risks are piling up

S&P Global put out a warning recently, stating that Taiwan’s power issues are becoming a credit risk for TSMC. Over the last decade, Taiwan’s electricity reserves have dropped below the government’s 15% target multiple times, which raises the risk of blackouts.

In power-hungry industries like semiconductor manufacturing, where production lines can’t afford even a flicker, these outages are a serious concern. TSMC usually gets priority when it comes to restoring power, but the grid is stretched thin.

To meet the demand for advanced semiconductors, TSMC’s power usage has nearly doubled over the last two generations of chip technology. Last year alone, TSMC used 40.5 kilowatt-hours to make a single 12-inch wafer mask layer, nearly twice the energy it needed in 2017.

On top of this, Taiwan’s grid is struggling to keep up with the new AI-driven demand for data centers. Companies like Google are building and expanding data centers on the island, which adds even more pressure.

The American Chamber of Commerce in Taiwan said in a white paper this year that Taiwan’s energy supply challenges could scare off international investors. The report described Taiwan’s energy situation as a “pressing challenge,” warning that abrupt price hikes and unstable power supply are creating a tough environment for global companies looking to invest.

Chen Jong-shun, a researcher at Chung-Hua’s Center for Green Economy, explained that Taiwan’s inconsistent approach to pricing is leaving companies in a bind. “Disorderly price increases would leave companies at a loss when planning their investments, making it difficult to control project risks,” Chen said.

Without a transparent pricing model, companies like TSMC have no choice but to play along with government policies, even if it means their profit margins are at the mercy of policy changes.

The Trump administration’s impact on Silicon Valley and TSMC

Meanwhile, Silicon Valley is bracing itself for a change in U.S. policy with Donald Trump back in the White House. Trump has promised to roll back several tech-focused policies set by his predecessor, Joe Biden. For one, he’s targeting AI development.

Trump is expected to scrap Biden’s executive order on AI safety, which aimed to set voluntary security guidelines for AI developers. Trump has argued that Biden’s approach to AI stifles innovation and said he wants to promote “AI development rooted in free speech.” This stance mirrors Republican criticism that Biden’s policies created “algorithmic bias” in AI.

Trump’s administration is also likely to adopt a “lighter touch” on antitrust regulation, with plans to ease up on merger oversight. Trump’s views on domestic semiconductor production, however, are uncertain. 

Although there’s a bipartisan push to boost chipmaking capacity in the U.S., Trump has been skeptical about government investment in the sector.

Tech leaders know the drill from Trump’s first term—he played nice with some, like Apple CEO Tim Cook, while clashing with others, like Amazon founder Jeff Bezos. And Trump hasn’t been shy about his feelings toward big tech since leaving office, accusing Google of hiding positive news about him and Meta of banning him unfairly from its platforms.

But Trump’s tech allies go beyond Silicon Valley’s usual suspects. Elon Musk, who has become one of Trump’s staunchest supporters, poured over $130 million into pro-Trump campaigns. Musk’s influence is growing as he used his influence as X owner (formerly Twitter) to amplify Trump’s reach.

Musk’s close friendship with Trump could potentially sway policy on matters affecting Tesla, SpaceX, and perhaps the entire tech industry.

Other tech moguls have also cozied up to Trump. Meta CEO Mark Zuckerberg, for instance, praised Trump’s response to a recent assassination attempt as “badass,” and Facebook has quietly removed some misinformation guardrails under Trump’s influence.

Bezos, who owns the Washington Post, allegedly quashed an editorial endorsing Kamala Harris just weeks before the election. If Republicans keep their grip on the House and Senate, Trump could push through a new tech agenda. 

For now, Vice President-elect JD Vance, known for his Silicon Valley affair, could play a major role in shaping the AI policy. Vance, like Trump, is skeptical of regulation, saying that Biden’s policies strengthened Big Tech’s hold on the market at the expense of smaller players.

Vance has openly supported open-source AI technology, which he claims could counter perceived left-wing bias in mainstream AI models. The vice president also holds hundreds of thousands of dollars in BTC right now.