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TSM stock and US government sign a $5 billion deal

TSM stock and US government sign a $5 billion deal
Elmaz Sabovic

The rise of artificial intelligence has significantly increased the demand for semiconductor chips and their necessary components. Taiwan Semiconductor Manufacturing (NYSE: TSM) is a significant supplier, most notably for Apple (NASDAQ: AAPL).

The US government provides Taiwan Semiconductor Manufacturing with over $5 billion in federal grants to enhance its production capacity and relocate operations from Taiwan to the United States. This funding will facilitate the establishment of a chipmaking facility in Arizona, as reported by Bloomberg.

Earlier this year, the Taiwanese chipmaker acknowledged the intense demand for advanced packaging and its inability to meet customer needs adequately. The construction of the new plant aims to address this capacity shortage issue.

CHIPS Act as a bullish catalyst for semiconductor stocks

The US has been striving to boost its domestic semiconductor production through the CHIPS Act passed in 2022. This legislation allocates $52.7 billion in funding, with $39 billion dedicated to subsidies for semiconductor production and $11 billion earmarked for research and development.

Funding under the CHIPS Act. Source: McKinsey & Company
Funding under the CHIPS Act. Source: McKinsey & Company

Last month, the Biden administration revealed that it was granting $1.5 billion to contract chip manufacturer GlobalFoundries (NASDAQ: GFS), initiating a new phase under the Act.

TSMC’s advanced manufacturing processes produce Nvidia’s (NASDAQ: NVDA) industry-leading artificial intelligence chips.

What does Wall Street think about TSM stock?

Following the announcement that TSM received a $5 billion grant after the markets closed on March 8, analysts have yet to respond. 

However, experts from TradingView have awarded TSM stock with a ‘strong buy’ rating. Of 39 evaluations, 29 have recommended a ‘strong buy,’ 9 have suggested a ‘buy,’ and only one has advised a ‘hold.’

The price target for TSM stock is set at $131.80, which represents a -9.95% decrease from the current price.

Analyst target for TSM stock. Source: TradingView
Analyst target for TSM stock. Source: TradingView

Given the continuously growing demand for chips and their components, along with the recent $5 billion US grant, TSM stock appears poised to prompt analysts to reevaluate their targets in the near future.

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