Earthquake Risk Meets Growth Ambitions: TSMC’s Tightrope Between Taiwan’s Seismic Reality and AI-Driven Demand

Taiwan’s landmark chipmaker finds itself balancing a natural peril with regulatory currents, as it rides the wave of AI-related demand while facing an upcoming China-related regulatory milestone. On Saturday evening, a magnitude 7.0 earthquake prompted precautionary evacuations at parts of TSMC’s Hsinchu headquarters, even as the company remains unusually robust operationally. The juxtaposition of nature and policy with an AI-fueled growth trajectory raises the question: how will these opposing forces shape TSMC’s near-term outlook?

Earthquake: evacuations, but core systems intact

Around 23:05 local time, a 7.0-magnitude quake struck off Taiwan’s northeast coast, about 32 kilometers from Yilan and at a depth of 73 kilometers. The tremor was felt as far as Taipei, with alert messages appearing on mobile devices across the island.

TSMC confirmed that a small subset of facilities within the Hsinchu Science Park reached the established evacuation criteria. Staff were moved outdoors and counted in line with emergency procedures, while the company reiterated that all safety systems across its fabs operated normally.

Taiwanese president Lai Ching-te urged continued vigilance and preparation for aftershocks. The fire department clarified that the tremor did not trigger a tsunami warning. In short, the episode underscored the world’s reliance on a technology hub positioned within a seismically active region, with no reported production damage at this stage.

The global supply chain lens: a dependency on a Taiwan hotspot

The event serves to spotlight how much the world depends on TSMC. Roughly 90% of cutting-edge semiconductors are produced at TSMC facilities—chips that drive high-performance computing, mobile devices, AI systems, automotive electronics, and data centers.

Major customers—including Nvidia, Apple, AMD, and Qualcomm—rely on TSMC for the most advanced processes. Any interruption would ripple through the supply chain—from cloud service providers to automakers. Taiwan sits at the edge of the Pacific Ring of Fire, making such natural events a recurring consideration for the chip industry.

Historical context reinforces the risk: a 7.2-magnitude quake struck Taiwan’s east coast in April 2024 with at least 18 fatalities and more than 1,000 injuries. The 1999 quake, at magnitude 7.3, caused over 2,000 deaths. For TSMC, earthquake protection is embedded in daily operations, and today’s evacuation underscores the sensitivity of its safety regime.

VEU status in China: regulatory uncertainty looms

Beyond natural hazards, TSMC faces regulatory scrutiny over its Nanjing campus. The Validated End-User (VEU) designation for the Nanjing fab expires on December 31, 2025. The VEUs simplify access to certain technologies and materials and lessen permit friction; its expiry raises questions about how China-based activities may be shaped going forward.

Roger (Luo) Luo, president of TSMC China, attempted to reassure the market this week. Industry sources quote him saying supply chains remain secure and that Chinese customers will retain access to advanced manufacturing within TSMC’s global network—beyond the 16nm and 28nm lines in Nanjing—provided regulatory requirements are met.

Nanjing’s plant accounts for about 3% of global foundry capacity. It handles roughly 20,000 wafers per month in 16/12nm and about 40,000 wafers per month in 28/22nm, with a focus on specialized applications such as automotive chips. A disruption there would be modest in scale but would carry a signaling impact on the balance among U.S. regulation, China operations, and technology transfer.

Strong results, AI as the growth engine

Operational performance remains stellar despite external headwinds. In the third quarter of 2025, TSMC delivered earnings per share of $2.92, comfortably above the consensus estimate of $2.59. Revenue for the quarter was $33.1 billion, up 40.1% year over year, driven by sustained demand for AI accelerators.

Key profitability metrics highlight the business strength:

• Gross margin: 59.5% in Q3 2025
• Return on equity: 34.34%

On the stock front, the shares closed at $302.84 on Friday, marking a fresh 52-week high. Year-to-date, the stock is up about 54%; over the past 12 months the gain sits near 57%.

Investor sentiment on Wall Street remains constructive: the street-wide rating is a Buy, with an average price target of $355. Several firms have recently raised their targets—Susquehanna to $400, Needham to $360, and Bernstein to $330.

AI chips, CoWoS, and capacity buildout

TSMC’s management has been frank about the appetite for AI accelerators, describing demand as “crazy.” Revenue from AI accelerator chips is expected to grow at a rate exceeding 40% annually through 2029. In the third quarter, advanced process nodes of 7nm and below already accounted for 74% of wafer revenue, underscoring TSMC’s leadership in the high-end segment.

A bottleneck persists in advanced packaging, notably CoWoS (Chip-on-Wafer-on-Substrate). The company aims to lift CoWoS capacity by roughly one-third by 2026. Industry chatter suggests Nvidia has already reserved more than half of the CoWoS capacity anticipated for 2026 to ensure its own AI GPU supply.

Geographic diversification and capacity expansion remain central to the strategy, with substantial investments underway outside Taiwan. Key projects in Arizona and Japan are integral pieces of the plan to broaden geographic risk buffers while lifting overall capacity.

Outlook: balancing risk with growth

In the near term, investors will be watching whether the weekend quake leaves measurable marks at production sites. The upcoming quarterly update in January 2026 will detail demand trajectories, any regulatory implications in China, and progress on the capacity expansion program.

For the year ahead, management has guided capex in the range of $40 billion to $42 billion. Revenue for 2025 is expected to advance by a mid-30% range in USD terms. Yet two external uncertainties remain: Taiwan’s seismic vulnerability and ongoing changes in U.S.–China trade policy. The intersection of a structurally expanding AI market and these external factors will likely define how durable the current stock rally for TSMC proves to be.