Key Points

• TSMC is launching a new process node that will allow it to manufacture even more efficient chips.

• All of the major chip designers use TSMC’s foundry services.

• 10 stocks we like better than Taiwan Semiconductor Manufacturing ›

Keeping up with the many developments in the global AI infrastructure buildout can be exhausting. Currently, there’s a growing view that Alphabet‘s (NASDAQ: GOOG) (NASDAQ: GOOGL) tensor processing units (TPUs) could take a big share of the AI chip market from Nvidia‘s (NASDAQ: NVDA) dominant graphics processing units (GPUs).

We’ll see how that plays out, but other competing products from AMD (NASDAQ: AMD) or Broadcom (NASDAQ: AVGO) could add further complexities to the question of what company is providing the best parallel processing hardware in the coming years.

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All these companies have one thing in common, though: They are all fabless chip designers. They may design the chips, but they outsource their manufacturing. One of the most critical companies in the semiconductor supply chain is Taiwan Semiconductor (NYSE: TSM), as it produces the majority of the high-powered computing chips for the artificial intelligence race. Although market share in the chip space may ebb and flow over the next few years, where the leading designers have their fabrication done likely will not.

This makes TSMC a must-own AI stock: It will benefit regardless of which company is delivering the best computing hardware.

Image source: Getty Images.

Taiwan Semiconductor is launching an exciting new technology

Taiwan Semiconductor is the leader in a relatively small industry. Making cutting-edge chips at scale is an expensive and technologically challenging proposition, and TSMC has only two primary competitors: Samsung and Intel. Samsung has fared well against Taiwan Semiconductor, although its foundry business is much smaller. Intel has been fairly uncompetitive in that arena of late, and the future of its foundry business is in question.

Taiwan Semiconductor is the best name in this important industry, and its ability to continuously innovate has kept it at the top. Starting in the fourth quarter, it is launching its new 2 nanometer (nm) process node. This generation of chips will be more densely packed with processors than the prior 3nm generation, which has several benefits. When configured for the same speed, 2nm chips consume 25% to 30% less power than 3nm chips. Given that electricity consumption is becoming a real issue as data center operators rush to build out computing capacity, this will be a welcome improvement.

Even without this new technology, TSMC was doing quite well. In the third quarter, revenue rose 41% year over year in U.S. dollars. Don’t be surprised to see that trend continue, as companies like Nvidia have projected that global data center capital expenditures will reach $3 trillion to $4 trillion by 2030. Meanwhile, AMD expects its own revenue to rise at a 35% compound annual rate over the next five years. TSMC is a key supplier for AMD.

TSMC doesn’t need Nvidia to remain the dominant player in AI chips to be successful. As long as the AI hyperscalers continue to spend more on AI data centers, the foundry giant will be a successful investment. The AI hyperscalers have all announced record-breaking spending for 2026 on top of already record-setting spending in 2025, so this growth thesis is alive and well.

So Taiwan Semiconductor is well positioned to take advantage of the massive spending spree, but the stock has another key factor going for it.

Taiwan Semiconductor’s stock is reasonably priced

Most stocks in the AI realm are viewed as expensively valued. While I wouldn’t consider TSMC cheap by any stretch, it’s still cheaper than most of the leading chip designers.

TSM PE Ratio (Forward) data by YCharts.

At 28 times forward earnings, TSMC is a reasonably priced stock in the AI realm. If spending on AI infrastructure rises as Nvidia projects, Taiwan Semiconductor will be a must-own stock over the next decade. The world is far from deploying the amount of computing power that will be required to make AI a part of our daily routines, and TSMC will be a key player in bringing that capacity online.

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Keithen Drury has positions in Alphabet, Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: short November 2025 $21 puts on Intel. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.