There’s a wild card coming for tech earnings. It’s not AI.

The makings of a forex mess have already shown up in the financials of Taiwan Semiconductor Manufacturing. This past week, the world’s leading chip maker allocated $10 billion to calm the effects of the rapid changes in the U.S.-Taiwan currency exchange rate. It’s the company’s third such move in the past 13 months, now totaling $18 billion.

Taiwan Semi collects U.S. dollars from customers like Apple and Nvidia, but reports in its domestic New Taiwan Dollar. For years, a favorable conversion rate helped the company. It collected the strong currency and reported its financials every quarter in the weaker one.

Taiwan Semi customers like Apple saw the other side of the trade. They collected a majority of sales in weaker currencies overseas and then had to convert them back to the U.S. dollar for their consolidated financial reporting.

Now, largely thanks to shifting U.S. policy, everything is about to flip. The dollar has weakened, and with it Taiwan Semi’s margin-enhancing currency trade.

“Everyone percent depreciation of the U.S. dollar against the NT dollar would result in an approximately 0.4 percentage point decrease in the Company’s operating margin," it said in its latest annual report.

To mitigate this risk, Taiwan Semi buys exchange rate hedges—and $18 billion buys a lot of hedging. The company uses a mix of U.S. dollar denominated bonds, currency options, futures, and swaps.

The increased need for hedging is a reflection of the rapid changes in the U.S. dollar exchange rate.

In 2022, the U.S. Federal Reserve began raising interest rates. That made U.S. Treasury debt, already the safest asset in the world, particularly attractive. At the same time, U.S. economic growth outpaced the rest of the world, and so too did its corporate profits. Attractive debt and stocks led to financial inflows from the rest of the world—and a strong dollar.

Ultimately, the U.S. dollar rose for three years against the Taiwanese dollar, a boon for TSMC’s revenue growth and profitability. In the third quarter of 2022, as the U.S. dollar shot up in value, TSMC’s annual revenue growth rate was 12 percentage points higher measured in Taiwanese dollars than U.S. dollars.

In 2025, with the U.S. dollar quickly declining against its Taiwanese counterpart, this effect has reversed. At the end of January, the U.S. dollar was up against the Taiwanese dollar by 5% from the year-earlier period. Near the end of June, it’s down 10%. Investors should expect TSMC’s revenue growth and profitability to take a hit as a result.

Much of the currency swing is due to shifting U.S. policies. President Donald Trump’s wavering commitment to NATO has prompted Germany and other European countries to invest in defense, stimulating their domestic economies.

Meanwhile, the trade war, and the anticipation of a lower U.S. trade deficit, means there will be fewer dollars going out to the world that return as foreign direct investment in U.S. assets.

“Other countries are considering investing more in themselves," Geoffrey Yu, a senior market strategist at BNY, told Barron’s. “Dollar investors are holding on to very high valuations for U.S. tech and they’re thinking, OK, I’ve ridden the wave of U.S. exceptionalism over the past three years because there was no investment case anywhere else. But now, suddenly you are seeing an investment case in other areas."

Among U.S. tech companies, Apple has the most to gain from a weakening dollar. It gets 64% of its sales from overseas.

In the first quarter of fiscal 2023, Apple lost eight percentage points of revenue growth to the fast-rising dollar. In the same quarter, Meta Platforms lost six percentage points. All the Big Tech companies get a large portion of their revenue from abroad and are subject to the ebb and flow of U.S. dollar exchange rates.

In Apple’s annual report, it warns, “The weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of the Company’s foreign-currency-denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing demand for the Company’s products."

In short, a strong dollar is bad for Apple. But now the winds are blowing in its direction. The U.S. Dollar Index, which compares the U.S. dollar to a basket of foreign currencies, is down 8% since last year. For Apple and other U.S. multinational companies, that tailwind will show up beginning with the second quarter.

In its fiscal-second-quarter earnings call on May 1, Apple said that its currency headwinds would improve, but that it would still be a drag. Since then, the Dollar Index has gone down another 3%, to a recent 97.15, the lowest since February 2022.

Despite the falling exchange rates and the resulting boost to Apple sales, Wall Street’s sales estimate for Apple’s current quarter has gone down.

That suggests there could be a surprise to come.

Write to Adam Levine at adam.levine@barrons.com