The US gave chip makers billions. Now comes the hard part.

Two years into a nearly $53 billion government effort to shore up the U.S. chip industry, the program’s impact is becoming clearer: Big companies making advanced chips are getting a boost, but there are limits to what the money can do.

The Chips Act, passed in 2022 to jump-start domestic semiconductor production, is supposed to supercharge chip making in the U.S. But even in its early stages, it is being challenged by fast-growing chip industries in competing countries, political complexity regarding the allotments at home and the sheer expense of manufacturing chips.

The lion’s share of the allotments have been slated for Intel and other large chip makers that plan to make advanced chips in the U.S., while some companies that are important in other parts of the chip-making supply chain have missed out. Meanwhile, other countries have amped up spending to keep competitive.

The White House calls the policy a victory. In his State of the Union speech in March, President Biden pointed to shortages of chips during the pandemic that drove up prices for mobile phones and cars. Instead of importing those chips, he said, private companies are now investing billions to build new factories in the U.S.

The program is forecast to triple the number of chips made in the U.S. by 2032, according to a new Boston Consulting Group study commissioned by the Semiconductor Industry Association. The building boom should boost the U.S. share of global chip production to about 14% in 2032, the study projects, compared with 12% in 2020.

That modest overall increase in U.S. market share partly reflects that European countries, South Korea, Japan, Taiwan and China are also stepping up investment in their own respective chip industries, underscoring how the global race to produce more of the most advanced semiconductors is expanding and accelerating.

Regardless, the money will give the U.S. a major boost in making the most cutting-edge chips, said Jimmy Goodrich, a senior adviser for technology analysis to Rand, and is likely to change the trajectory for a U.S. industry that had fallen behind much of the rest of the world. Without the program, Boston Consulting estimated, the U.S. share would have fallen to 8% in 2032.

“What the Chips Act is going to do is arrest that terminal decline, right the ship and put it back on a more stable path," Goodrich said. “It might slightly increase U.S. overall chip production, but the more significant increase is going to be the relative share" of advanced chip production.

Indeed, Chips Act grants have focused on cutting-edge chip factories that require tens of billions of dollars of capital outlays, and in that arena, the Boston Consulting report projected the U.S. share would grow from zero to 28%. That is more bullish than a recent prediction of a 20% share by the end of the decade from Commerce Secretary Gina Raimondo, who is overseeing the funding.

“Because of the Chips Act, every company capable of producing leading edge semiconductors at scale is now expanding in the United States, and we have bolstered our country’s supply chain resilience and national security," said Mike Schmidt, director of the Chips Program Office, in a statement.

The Chips Act was a bid to reinvigorate the American chip industry and fend off rising competition from China in a sector increasingly crucial to national security. It outlined $39 billion of direct grants for chip factories, alongside funding for government-led research and workforce-development initiatives, among other efforts. As a result, new chip-making plants—known as fabs—are sprouting up in Arizona, Texas, New York, Oregon and Ohio.

Political maneuvers

The government received hundreds of applications for the grants from companies eager for funding. The biggest chunks of money went to Intel, which got up to $8.5 billion of grants for several projects, and to Taiwan Semiconductor Manufacturing Co., Samsung Electronics and Micron Technology, each of which were allotted more than $6 billion for their projects.

TSMC, the world’s largest contract chip maker, is investing more than $65 billion to build factories in Arizona. Samsung is investing about $45 billion in Texas, and Micron, a memory manufacturer, is planning up to $125 billion worth of new facilities in New York and Idaho.

Industry executives have largely been pleased with the rollout of the program, even as labor disputes, higher costs and extended environmental reviews are slowing work compared with some other countries.

Some have said the program’s success is still in doubt because it isn’t clear if all of the promised chip factories will be fully built out. Also, TSMC and Samsung are expected to keep their most advanced chip production back home in Taiwan and South Korea.

A TSMC spokeswoman said the decision was based on the practical difficulties of moving advanced chip making to the U.S. rather than political considerations. Samsung declined to comment.

Some investors are worried about the amount of money being spent on new construction. Elliott Investment Management, an activist investor, took a $2.5 billion stake in Texas Instruments and wrote a letter last month to its board of directors urging slower spending on manufacturing growth to boost cash flows. TI is expected to receive grants under the Chips Act.

Some companies missed out. Almost two years ago, the U.S. chip maker SkyWater Technology unveiled plans to build a $1.8 billion research and production facility in West Lafayette, Ind., contingent on government funding under the Chips Act.

A provision in a March spending bill directed that $3.5 billion of Chips Act money be reserved for a secure project making defense-industry chips, which is expected to go to Intel.

That change led the office doling out the money to cancel funding for commercial chip research and production facilities being planned by companies including SkyWater and Applied Materials, a maker of chip manufacturing equipment.

SkyWater recently decided to cancel the project and release its option on the land. The Bloomington, Minn.-based foundry makes older generation chips for the military, among other customers.

“The project is on hold with no definitive plan to move forward, but the concept is viable," SkyWater Chief Executive Tom Sonderman said. If and when government mechanisms “are in place to support R&D facilities, SkyWater will examine those opportunities," he said.

Applied Materials still plans to build its research center, originally expected to cost $4 billion, but might not do so in a single facility, and parts of it could be outside the U.S., according to people familiar with the situation.

Funding gap

The impact of the program is also limited by the sheer cost of chip plants. A single advanced chip fab can cost more than $20 billion, and the planned U.S. facilities won’t be operating until later this decade. Those realities mean that even a historic $39 billion grant program can’t itself tip the global share significantly in the U.S.’s favor.

“This could only support maybe a few big fabs, but I think that’s the starting point," said Ajit Manocha, chief executive officer of the industry group SEMI and a former CEO of the chip maker GlobalFoundries. “I’m pretty sure that the Department of Commerce and the government in general understands that we have a huge gap to close."

That gap, Manocha said, will probably take several hundred billion dollars to fill and would take a decade, assuming further replenishments of Chips Act funding pass through Congress.

The chip companies see the program as a solid start to a long-term push with more money likely required, although it isn’t clear that lawmakers have the appetite to support the industry with further grants.

In the absence of more grant money, tax breaks for purchases of chip manufacturing equipment might end up having a deeper impact, industry executives said. The Chips Act included a 25% tax credit for that equipment, which some executives estimate has already funneled tens of billions of dollars into the industry.

Intel Chief Executive Pat Gelsinger said in an interview that tax incentives were the most important mechanism to keep the momentum of the program going in the long run, among other efforts to support the supply chain and domestic innovation.

The tax credit expires in 2026, and industry lobbyists are already preparing to push for an extension.

Write to Asa Fitch at asa.fitch@wsj.com