Concerns & Risks -- 7.5/10

The geopolitical risk is real, unhedgeable, and warrants a meaningful discount. However, it has been a known risk for years and is partially offset by the Arizona diversification strategy. The remaining risks -- customer concentration, capex magnitude, overseas dilution, export controls, and FX -- are well-managed by a best-in-class operating team. The capex cycle is aggressive but supported by unprecedented demand visibility. Scoring reflects that these risks are real but mostly priced in by the market. Weight: 15%

Taiwan Concentration

>90%

Of advanced chip production in Taiwan

Top 2 Customers

~36%

NVIDIA ~19% + Apple ~17%

FY2026 Capex Guidance

$52-56B

Highest in company history

Arizona GM Dilution

2-3%

Widening to 3-4% in later years

CRITICAL: Taiwan geopolitical risk

Binary, Existential, and Unhedgeable -- The Single Most Important Risk

This is the single most important risk for any TSMC investor and cannot be diversified away. A China invasion scenario carries an estimated $10 trillion global economic impact in Year 1. TSMC produces >90% of the world most advanced chips in Taiwan. A military conflict would halt global technology supply chains. Expert consensus holds that a full-scale invasion remains "unlikely in the next 5 years" but cannot be ruled out. Quarantine or blockade scenarios are considered more probable near-term threats. TSMC reportedly has plans to disable manufacturing equipment if captured. Taiwan "silicon shield" strategy relies on the world dependence on TSMC as a deterrent.

Scenario	Probability	Impact	Mitigation
Full invasion	Low (unlikely in 5 years)	Catastrophic -- $10T global impact	Equipment disable plans; Arizona 30% of N2+
Quarantine / blockade	Low-moderate	Severe -- supply chain disruption	Inventory buffers; Arizona/Japan/Germany fabs
Status quo tension	High (base case)	Moderate -- persistent valuation discount	Silicon shield deterrent; diversification ongoing

Key risks (ranked by severity)

#	Risk	Severity	Detail / Mitigant
1	Taiwan geopolitical risk	CRITICAL	Binary and existential. $10T estimated Year 1 impact. >90% of advanced chips in Taiwan. Expert consensus: unlikely in 5 years but cannot be ruled out. Mitigation: Arizona expansion (30% of N2+), Japan/Germany fabs, equipment disable plans. Warrants permanent valuation discount.
2	Customer concentration	MEDIUM-HIGH	NVIDIA (~19%) and Apple (~17%) = ~36% of revenue. NVIDIA share doubled YoY as AI surged. If NVIDIA data center growth slows or custom ASIC alternatives gain share, TSMC would feel it. Mitigant: 500+ customers, every major AI designer is a customer, hyperscaler custom ASIC demand diversifying within HPC.
3	Capex magnitude and return risk	MEDIUM	FY2025 capex of $40.9B is the highest ever. FY2026 guided $52-56B -- a massive step-up. Arizona total: $165B over multiple years, with long-term projections toward a $465B 12-fab cluster. If AI demand disappoints, returns could compress. Mitigant: revenue growth has consistently outpaced capex; FCF remains positive.
4	Arizona cost overruns and dilution	MEDIUM	Overseas fab dilution starts at 2-3% of gross margin, widening to 3-4% in later years. Cost drivers: smaller scale, higher supply chain prices, early-stage ecosystem. CFO noted "inflation in cost and potential tariff-related cost increases." Mitigant: Fab 1 yield already matches Taiwan; premium pricing partially offsets; dilution narrowed ahead of schedule.
5	Export control / China risk	MEDIUM	China revenue has declined but remains a factor. H20 and other product restrictions create uncertainty. C.C. Wei: "We have taken this into consideration when providing our full-year growth outlook." Mitigant: even excluding China, management is "still confident that a 40% CAGR or even higher can be achieved" for AI accelerator revenue.
6	Currency risk	MEDIUM	75% of COGS in NT dollars; nearly all revenue in USD. Every 1% NT appreciation reduces gross margin by ~40bps. FX headwind was ~4.4% in Q2 2025, creating ~180bps gross margin impact. Structural and unpredictable but well-managed historically.

Assessment: are the risks priced in?

Risk	Priced In?	Assessment
Taiwan geopolitics	Partially	Known for years. Persistent multiple discount vs US peers. Arizona provides partial mitigation. But a binary outcome cannot be "priced in" -- it either happens or it does not.
Customer concentration	Yes	Well-understood. Counterbalanced by the fact that TSMC has no customer concentration risk that matters -- every customer needs TSMC more than TSMC needs any single customer.
Capex magnitude	Yes	Guided at $52-56B for FY2026. Revenue growth has consistently outpaced capex growth. FCF remained positive at NT$1,003B despite peak capex.
Arizona dilution	Yes	Management is transparent: 2-3% initially, widening to 3-4%. Gross margins still expanded to 62% despite this dilution. Premium pricing partially offsets.
Export controls / FX	Yes	Well-managed. AI accelerator CAGR of mid-40s%+ holds even excluding China. FX is structural but historically absorbed.

Verdict: The non-geopolitical risks are well-understood, well-managed, and largely priced in. The geopolitical risk is the one risk that cannot be fully priced -- it is binary and existential. It warrants position sizing discipline (not avoidance) and a permanent valuation discount relative to US-domiciled peers. The stock premium multiple is appropriate for a monopoly asset with 20%+ revenue CAGR visibility through 2029.

Score rationale

Score of 7.5/10 reflects real but mostly priced-in risks for a monopoly asset with exceptional demand visibility.

The geopolitical risk is the dominant concern and the primary reason this score is not higher. A Chinese military action against Taiwan would be catastrophic for TSMC and the global economy. This risk is real, binary, and unhedgeable -- it warrants a permanent discount to intrinsic value and position sizing discipline. However, it has been a known risk for decades and is partially mitigated by the Arizona expansion (30% of N2+ capacity), Japan and Germany fabs, and the "silicon shield" deterrent.

The remaining risks -- customer concentration (NVIDIA + Apple = ~36%), capex magnitude ($41B in FY2025, $52-56B guided for FY2026), Arizona margin dilution (2-3%), export controls, and FX sensitivity -- are well-understood, transparently communicated, and manageable given TSMC pricing power and scale advantages. Revenue growth has consistently outpaced capex growth. FCF remained positive at NT$1,003B despite peak capex. Gross margins expanded to 62% despite overseas dilution.

The score reflects that the non-geopolitical risks are largely priced in and well-managed, while the geopolitical tail risk remains the key risk factor that prevents a higher score.

Data sourced from Daloopa, earnings transcripts, and geopolitical risk assessments.