The United States has agreed to provide up to $6.6 billion in direct funding to Taiwan Semiconductor Manufacturing Co (NYSE:TSM) to build advanced chip facilities in the U.S.

The deal aims to enhance domestic semiconductor production and bolster national security by reducing reliance on foreign suppliers, Barron's reports.

The Biden administration announced that Taiwan Semiconductor's investment will attract $65 billion in private capital to establish three state-of-the-art plants in Arizona.

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The announcement comes just before President-elect Donald Trump assumes office. Trump had previously attacked Taiwan for allegedly undermining the U.S. chip industry and criticized the U.S. Chips Act.

The first of Taiwan Semiconductor's facilities will likely commence operations by early 2025, focusing on producing cutting-edge logic chips. These chips will power next-generation technologies, including 5G/6G smartphones, autonomous vehicles, and AI applications.

Early production at the Arizona plant reportedly matches the quality of Taiwan Semiconductor's facilities in Taiwan, showcasing strong initial yields.

Commerce Secretary Gina Raimondo told Barron's the importance of manufacturing these advanced chips domestically, emphasizing their role in AI, quantum computing, and military hardware.

The initiative aims to mitigate risks associated with overseas supply chains by producing these chips on U.S. soil, addressing a critical national security concern.

In addition to the direct funding, the U.S. government is extending up to $5 billion in proposed loans to support Taiwan Semiconductor's Arizona project.

The investment will likely generate approximately 6,000 direct manufacturing jobs. A senior U.S. official told Barron's that at least $1 billion of the allocated funding could be distributed to Taiwan Semiconductor this year, contingent on meeting specific milestones.

Meanwhile, Taiwan Semiconductor remains focused on consolidating its moat while diversifying its footprint beyond Taiwan as global governments dole out attractive subsidies.

The contract chipmaker has ramped up its deployment of extreme ultraviolet (EUV) lithography systems, a vital technology in semiconductor production, even with the substantial expense involved.

Each EUV machine costs more than $100 million, making them some of the most costly assets in the chip manufacturing sector.

Industry analysts suggest that TSMC has significantly boosted its EUV capacity, increasing its share of global EUV installations from 50% in 2020 to 56% by 2023.

In Asia, Japan has also earmarked over $64.9 billion to boost the semiconductor and AI sectors. Taiwan Semiconductor is eyeing a second facility in Japan's Kumamoto region, considering a $13.5 billion investment after its first $8.6 billion wafer factory there.

Additionally, the company intends to establish a third advanced chip plant valued at $20 billion in Kumamoto to produce 3-nanometer chips.

Taiwan Semiconductor stock is up 86% year-to-date.

Price Actions: TSM stock is down 1.21% at $186.23 at the last check on Friday.

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