Taiwan earthquake disrupts supply chain, but TSM stock remains stable

Taiwan Semiconductor (NYSE:TSM) controls a significant portion of the global chip foundry market. But what the company cannot control is the occurrence of natural disasters and their devastating fallout.

Moreover, Taiwan Semiconductor cannot control how stock traders will react after natural events occur that could disrupt global supply chains. We can assume that these events will cause TSM stock price to drop by 5%, 10% or more.

But activity on Wall Street can sometimes be unpredictable. I wouldn’t claim that Taiwan Semiconductor is immune to external shocks, but perhaps the company is so dominant in the chip manufacturing industry that not even a (literally) seismic event could shake Wall Street’s optimism.

Will 2024 be the year of supply chain disruption?

If 2022 was the year of rigid inflation and 2023 was the year when artificial intelligence (AI) gained market attention, will 2024 be remembered as the year of supply chain disruption? This year is still young, but it seems to be shaping up to be an era of tragic disaster.

Recently a bridge in Baltimore Harbor collapsed. This is a critical entry point for ships that helps maintain global supply chain operations. In terms of business activity, the collapse of the Port of Baltimore would have a particularly detrimental effect on Detroit-based automakers such as Ford (NYSE:F) and General Motors (NYSE:GM).

It’s still early April, and already a second event has occurred that will constrain global supply chains. This morning Americans woke up to learn about a magnitude 7.4 earthquake that killed at least nine people and injured more than 900 in Taiwan.

This is a historic event in the worst possible way. Taiwan’s biggest earthquake in 25 years has caused buildings to collapse and roads to be damaged. The world will certainly mourn the loss of life and assess the structural damage for future generations.

Of course, chip manufacturers are also affected. For example, the almighty NVIDIA (NASDAQ:NVDA) will undoubtedly experience operational disruptions.

But the most direct impact will hit Taiwan Semiconductor simply because of its location. The company’s chip manufacturing plant wasn’t exactly at the center of the quake, but it was still evacuated.

Why should U.S.-based investors care about Taiwan Semiconductor’s shutdown of its chip manufacturing operations? If you invested in NVIDIA or Apple (NASDAQ:AAPL) directly or through an index fund, you will be affected by Taiwan Semiconductor because they are a major supplier to those companies. As Bloomberg notes, “a single tremor” from the Taiwan earthquake “could destroy an entire batch of precision semiconductors” produced by Taiwan Semiconductor.

TSM stock remains surprisingly stable.

Logic dictates that if a magnitude 7.4 earthquake were to occur in Taiwan, TSM stock would plummet on the news. However, it is surprising that Taiwan Semiconductor shares suffered little damage in Wednesday morning trading.

First of all, investors should not expect Wall Street’s reaction to events to be logical. But there are other reasons why markets are willing to shake off this tragic and widespread natural disaster.

Workers are already returning to Taiwan Semiconductor’s chip manufacturing plants, according to Barron’s. Additionally, the company’s “largest manufacturing sites in Taiwan” are all located “on the western side of the island, opposite where the earthquake occurred.”

Additionally, NVIDIA CEO Jensen Huang previously expressed confidence in Taiwan Semiconductor’s geographic diversification. It’s fortunate that both NVIDIA and TSM have sites under construction outside of Taiwan, in Arizona and Japan.

Along with all this, Intel (NASDAQ:INTC) recently announced that its chip foundry business will lose $7 billion in 2023. Intel’s financial woes are good news for TSM as it seeks to compete with Taiwan Semiconductor as a global chipmaker.

As a result, despite the devastating loss of life and the ripple effects of supply chain disruptions, TSM stock barely moved. The key takeaway for technology hardware businesses is that geographic diversification is essential.

But are there any takeaways for TSM shareholders? One might conclude that Wall Street is callous and indifferent to the human impact of tragic events.

That may be true, but there is more to the story than that. Perhaps the biggest takeaway is that solid companies like Taiwan Semiconductor are more resilient than anything else. This obviously means that it wouldn’t be a bad idea to consider a stock position in TSM stock, as the company and its loyal employees can withstand almost anything.