Finding the ultimate artificial intelligence (AI) investment isn’t easy. However, I think Taiwan Semiconductor Manufacturing(NYSE: TSM) is about as close to that description as it gets. Taiwan Semiconductor has positioned itself nicely to succeed in the current market environment, and it’s slated to cash in on all of the AI spending.
I’ve got three reasons why Taiwan Semiconductor (also known as TSMC) is the ultimate way to invest in AI, and all of them add up to make it a great investment pick.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
While there is a lot of debate about whether Nvidia can sustain its lead or if Broadcom or Advanced Micro Devices can sneak up and capture some of it, the reality is that Taiwan Semiconductor will be the primary chip fabricator regardless of which company’s computing units are most popular. This is an excellent position to be in, as the only thing Taiwan Semiconductor is concerned about is AI hyperscalers spending more and more money on chips. And several projections point to this cohort doing exactly that.
While the big four AI hyperscalers are expected to spend around $650 billion in capital expenditures this year, there are several other businesses that are also spending big. It also doesn’t include other regions like China or Europe. There is a massive AI market already, but it’s only expected to get bigger. McKinsey & Company estimates that by 2030, about $7 trillion will be spent building out data centers for AI. Taiwan Semiconductor will be a major chip supplier for a large part of that spending, making it a top way to invest in AI expansion.
Taiwan Semiconductor also has some long-term growth projections of its own. From 2024 to 2029, management estimates that the compound annual growth rate (CAGR) of AI-related chips will be in the mid- to high-50% range. That’s unbelievable growth sustained for a long time. It also shows huge demand, and TSMC is spending between $52 billion and $56 billion this year to increase capacity to meet that demand.
While AI chips are making up an increasingly larger part of TSMC’s business, there are still other significant parts of the business that aren’t growing nearly as fast, which is why management expects about a 25% CAGR from 2024 to 2029 overall. Still, it’s not often you see a company with a clear path to that rapid growth rate, and I think it’s another great reason why Taiwan Semiconductor is the ultimate AI investment.
One of the biggest concerns many investors have with Taiwan is its location and geopolitical risks. Taiwan is located just off the shore of China, and China wants to bring Taiwan more closely under its control. There are constant fears about a China takeover swirling, which makes many investors ignore the stock due to what could happen if a war breaks out.
However, there are a few things investors must realize. First, Taiwan has dramatically expanded its global footprint. Taiwan Semiconductor has fabrication facilities in Arizona, Japan, and Germany. While the bulk of its production is still in Taiwan, its management team is well aware of the risk and is working to increase its global footprint.
The second reason is that if a war breaks out and chip supply halts, the entire global economy would crash. This is a scary scenario and why TSMC’s stock would be greatly affected as would every other tech company. As a result, I don’t put a lot of weight on this risk, as the ancillary effects in the entire market would be brutal as well.
I think Taiwan Semiconductor is one of the best ways to play AI, and if you don’t already have exposure to this stock, right now is a great time to scoop it up.
Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $495,179!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,058,743!*
Now, it’s worth noting Stock Advisor’s total average return is 898% — a market-crushing outperformance compared to 183% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Keithen Drury has positions in Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
