TSMC Stock Plunges as AI Developments Shake Global Chip Market

Taiwan Semiconductor Manufacturing Co. (TW:2330) shares tumbled 6.6% on Monday as local markets reopened after a week-long break, reacting to a global sell-off in semiconductor stocks. The Taiwan Weighted Index (TWII) dropped 4.4%, with Hon Hai Precision Industry (TW:2317), a key NVIDIA (NASDAQ:NVDA) supplier, sinking 10%.

TSMC, a cornerstone of the AI supply chain, has seen substantial gains from the AI boom, boosting revenue and market valuation. However, investor sentiment shifted last week with the release of China’s DeepSeek R1 AI model. The model’s ability to rival offerings from OpenAI and Meta (NASDAQ:META) using older hardware and lower costs raised concerns about the necessity of massive AI infrastructure investments.

The unveiling of DeepSeek R1 triggered a sharp decline in global chip stocks. Nvidia, a major TSMC customer, saw its market capitalization shrink by $600 billion, contributing to a broader $1 trillion wipeout in tech valuations. This uncertainty spilled over to TSMC’s U.S.-listed shares (NYSE:TSM), which fell about 6% last week.

The market reaction underscores fears that more efficient AI models could reduce demand for cutting-edge semiconductors, impacting companies heavily invested in AI hardware. As AI technology evolves, the semiconductor industry faces heightened volatility, with investors reassessing the long-term growth trajectory of chipmakers like TSMC and Nvidia.