Keithen Drury, The Motley Fool
5 min read
When you hear investors talk about AI, names like Nvidia (NASDAQ: NVDA) and AMD (NASDAQ: AMD) pop up all the time. While those are great stock picks, investors can also go a layer deeper and look at a stock like Taiwan Semiconductor (NYSE: TSM). Taiwan Semiconductor is a chip foundry, which means that it manufactures the chips that giants like Nvidia and AMD design.
Because it’s selling its services to most of the competitors in the AI chip race, TSMC is set to keep profiting from the infrastructure build-out no matter which of them is gaining or losing ground. All TSMC cares about is whether companies are spending more and more on data centers each year. If they are, then TSMC will need to produce more chips to meet demand. Considering the language the market has heard from some of the AI hyperscalers and computing unit providers recently, I’d say it’s a safe bet that 2027 will be another year for the record books.
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That bodes well for TSMC, and I think a $5,000 investment made now could be worth far more by 2030.
Taiwan Semiconductor’s scale is unmatched
Taiwan Semiconductor is the giant in its industry. Nobody else comes close to the chip production capacity that it has, and it accounted for over 70% of global third-party foundry revenue during the second quarter. So, if Nvidia or AMD wanted to switch a large share of their business away from TSMC to another foundry, they likely couldn’t. Only TSMC has the production capacity necessary to meet the insatiable demand for AI computing power.
However, neither of these two would likely dream of switching foundry partners. Leadership teams at both have many times discussed how valuable their companies’ relationships with TSMC are. Since TSMC always has innovative chip fabrication technology combined with excellent manufacturing yields, it has become a strong partner to many companies.
For years, the only thing about TSMC that investors could find fault with was the proximity of most of its foundries to mainland China. The Chinese government has long made clear that it wants to take control over the island of Taiwan, and concerns persist that it will at some point attempt to do so. Such a military conflict would put TSMC’s foundries and exports at risk, and that will remain an issue. However, TSMC is in the midst of investing $265 billion in U.S. chip production facilities, which will help geographically diversify its operations. That’s a huge deal and helps solidify TSMC’s future.
