Every generation of investors finds a stock that is easy to buy and hard to sell. Decades ago, portfolio managers said that nobody ever got fired for buying IBM. Nowadays, no stock is as close to that position as Taiwan Semiconductor Manufacturing Company (NYSE:TSM).

According to Copley Fund Research's data, TSM is present in over 90% of emerging-market and Asia ex-Japan active portfolios. Roughly two-thirds of global active managers own the stock.

Even US-focused portfolios — despite having domestic semiconductor champions of their own — continue treating TSM as a core holding rather than a regional allocation.

The Global Cornerstone

The reasons behind this investor interest are straightforward. Nearly every chip designer depends on TSM's cutting-edge manufacturing nodes. According to TrendForce, the company controlled around 70% of the global foundry market by revenue in 2025.

This dominance is what creates the career-risk trade. Buying TSM no longer requires conviction. Avoiding it does.

Still, crowded trades rarely break because investors suddenly stop believing the long-term story. They break because a small crack appears in the narrative, and positioning does the rest.

The most obvious catalyst is AI capital expenditure itself.

The market has largely assumed that Meta, Microsoft, Alphabet, and Amazon will continue spending billions of dollars annually on AI infrastructure. That may prove optimistic.

Sequoia's Capital Partner David Cahn described the issue as "AI's $600 billion question" — whether the industry can generate enough real revenue to justify the scale of infrastructure investment currently underway.

If hyperscalers begin slowing orders because AI-related revenues lag expectations, the market would start repricing the entire semiconductor supply chain. Arguably, TSM doesn't need collapsing demand to trigger underperformance – the market is so intertwined that it only needs demand growth to become slightly less appealing.

Meanwhile, even TSM management has acknowledged the risk of excess enthusiasm. "Careless investment would be a disaster for TSM for sure," CEO C.C. Wei said earlier this year while discussing concerns about an AI bubble.

Another vulnerability is physical rather than financial. Semiconductor manufacturing is extraordinarily resource-intensive.

TSMC's advanced fabs consume vast amounts of electricity and ultra-pure water, both of which have become increasingly sensitive issues in Taiwan following droughts and persistent grid concerns. TSMC's expansion plans assume uninterrupted access to both.

The Looming Feedback Loop

Then there is geopolitics. The US CHIPS and Science Act has already accelerated efforts to diversify semiconductor supply chains away from Taiwan. Even if competitors remain technologically behind, governments and customers may increasingly accept lower efficiency in exchange for supply-chain resilience.

The danger for TSM is not the catalyst itself but ownership concentration amplifying the reaction. When so many active managers own the same stock, selling becomes reflexive – and difficult to orderly untangle.

Even a modest earnings disappointment or weaker capex outlook can lead to profit-taking. Then, TSM might start underperforming benchmarks.

Managers who were comfortable with an overweight allocation start trimming to preserve relative returns. As momentum weakens, index weights decline and passive flows slow.

Eventually, the stock's underperformance becomes the reason for further selling. Feedback loop emerges, and low prices become a cure for low prices.

Ironically, TSM's dominance is slowly engineering its greatest vulnerability. When everyone owns the same stock for the same reason, it doesn't take a catastrophic failure event to break the trade. It only takes the first credible reason to reduce exposure.

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