Speaking at the All-In Summit, Elon Musk warned that existing fabs are running at full capacity and that a disruption in Taiwan could compound supply shortages.
To hedge this risk, Tesla, Inc. (NASDAQ:TSLA) and SpaceX (NASDAQ:SPCX) are building their own "Terafab" facility, as scaling AI across data centers, vehicles, and robotics demands far more chip capacity.
For ETF investors, this concentration risk begs the question: which funds offer exposure to the AI chip boom without relying entirely on Taiwan?
The Taiwan Concentration Is Hiding in Plain Sight
Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) is a critical manufacturing partner for Nvidia Corp (NASDAQ:NVDA) and other leading AI-chip designers.
The VanEck Semiconductor ETF (NASDAQ:SMH), for example, has about 10% of its portfolio in TSMC, making the Taiwanese foundry its second-largest holding after Nvidia at 22.42%. SMH also had 82.32% of its assets in US companies and 9.54% in Taiwan.
That means an investor buying SMH for AI exposure is also taking a meaningful position in the Taiwan semiconductor ecosystem.
The iShares Semiconductor ETF (NASDAQ:SOXX) has a somewhat different construction. TSMC accounts for 4.8% of the fund, while Nvidia represented 9.3%. Applied Materials Inc (NASDAQ:AMAT), Lam Research Corp (NASDAQ:LRCX) and KLA Corp (NASDAQ:KLAC); who supply equipment used to manufacture, process and inspect semiconductors; together account for more than 12% of the portfolio.
That equipment exposure could become important if the industry's response to the capacity crunch is to build more fabs outside Taiwan.
ETFs to Consider for a Different AI Supply-Chain Bet
One potential alternative is South Korea, particularly because its semiconductor industry is heavily exposed to memory rather than leading-edge foundry manufacturing.
The iShares MSCI South Korea ETF (NYSE:EWY) has SK Hynix Inc (NASDAQ:SKHY) as its largest holding at 25.13%. Samsung Electronics is also a major component.
That gives investors exposure to a different part of the AI supply chain. SK Hynix is a key supplier of high-bandwidth memory used alongside advanced AI accelerators, while Samsung is involved across memory and semiconductor manufacturing.
South Korea, therefore, isn't a pure substitute for Taiwan. But it offers exposure to the AI infrastructure buildout without the same direct dependence on TSMC.
SPDR S&P Semiconductor ETF (NYSE:XSD) is interesting because it is equal-weighted, so investors aren't making as concentrated a bet on Nvidia as they would through SMH. It gives greater exposure to smaller and mid-sized semiconductor companies, potentially making it a better "broader supply-chain" play.
iShares MSCI Japan ETF (NYSE:EWJ) offers an under-the-radar Taiwan diversification path. Japan has a deep semiconductor equipment and materials ecosystem, including companies such as Tokyo Electron, Advantest and Renesas. With this fund, you're effectively looking at the "picks and shovels" behind semiconductor manufacturing rather than another chip designer.
The Other Destination is… Arizona
TSMC is accelerating its Arizona expansion, raising its total U.S. investment to $265 billion across 12 planned manufacturing and packaging facilities. Once fully built out, the Arizona cluster could house roughly 30% of TSMC's 2nm and more advanced capacity.
This suggests a "Taiwan hedge" doesn't require abandoning semiconductor ETFs—it means shifting focus toward funds heavy in U.S. fabs, equipment, memory, and packaging. Ultimately, Musk's Terafab is a bet that physical manufacturing capacity is AI's next bottleneck.
If so, ETF investors should look beyond chip designers like Nvidia toward the equipment and infrastructure providers building the global network of new fabs.
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