Why Taiwan Semiconductor Manufacturing Stock Dropped Today

What happened

Shares of Taiwan Semiconductor Manufacturing (TSM 2.71%) -- the most valuable semiconductor company in the world -- became just the tiniest bit less valuable on Tuesday, as the stock shed 2.1% through 10:55 a.m. ET.  

And curiously, the stock's slide this morning appears to be in response to good news, not bad.

So what

This morning, TSM announced that it will more than triple its planned investment in semiconductor manufacturing in Arizona. In addition to its initial factory (or fab) already under construction and expected to begin operations in 2024, the company will build a second fab with a targeted 2026 start date.  

It will be manufacturing cutting-edge chips at both fabs, putting out 4-nanometer (nm) circuit-width chips at the first factory and even smaller 3nm chips at the second. (For comparison, Intel's smallest chip being produced at volume today have circuits 7nm in width).  

In total, the two fabs will cost TSM $40 billion and represent "the largest foreign direct investment in Arizona history."  

Now what

Now that sounds like good news -- not the things of which stock price declines are usually made of -- and it is good news. With TSM's two Arizona fabs working at full capacity, The Financial Times estimates that they might supply 15% of America's total need for chips.  

Granted, this expansion will cost TSM some money. But the company will presumably benefit from subsidies under the Biden administration's $278.2 billion CHIPS and Science Act, passed earlier this year, offsetting some of TSM's $40 billion cost and winning goodwill from the U.S. government in the process.  

All things considered, I think today's good news really is as good as it sounds and that investors selling TSM stock today are making a mistake. At its valuation of less than 15 times trailing earnings -- with a long-term growth rate projected north of 21% (according to analysts polled by S&P Global Market Intelligence), and a 2.2% dividend yield besides -- I see a lot to like about TSM stock and even more to like about the stock today.