Prediction: This Will Be the Prime-Performing Semiconductor Inventory Over the Subsequent 10 Years (Trace: It is Not Nvidia)

The launch of ChatGPT on Nov. 30, 2022 represented one of many main catalysts that sparked the revolution round synthetic intelligence (AI). Since that date, shares of semiconductor inventory Nvidia have soared an astronomical 550%, reworking the corporate to a multitrillion-dollar enterprise within the course of. Whereas semiconductor chips ought to stay an integral element of AI growth, buyers wish to determine new progress alternatives past Nvidia.

Taiwan Semiconductor Manufacturing (TSM 3.68%) is one other firm that appears well-positioned to dominate the AI chip enviornment over the subsequent decade. Its progress prospects and valuation developments help the case for why Taiwan Semi is my best choice within the chip house proper now.

Taiwan Semi is the engine powering the chip growth

Chances are high you are conversant in names like Nvidia, Superior Micro Units, and Broadcom in relation to superior chipsets and information heart infrastructure used for constructing AI purposes. What you is probably not so conversant in, nonetheless, is the position Taiwan Semi performs within the background.

Nvidia, AMD, Broadcom, OpenAI, Amazon, Qualcomm, and lots of others depend on the fabrication processes of TSMC to assist manufacture their chips and built-in methods merchandise. In different phrases, Taiwan Semi brings the engineering prowess from AI’s greatest gamers to life.

Picture supply: Getty Pictures.

TSMC’s progress is simply getting began

In 2024, TSMC generated $88.3 billion in gross sales and $6.81 in earnings per share. Per the consensus estimates under, Wall Avenue is anticipating the corporate’s prime line to proceed rising quickly over the subsequent couple of years whereas sustaining wholesome profitability too.

Knowledge by YCharts.

AI within the semiconductor market is anticipated attain a market measurement of $233 billion by 2034, in line with Priority Analysis. Contemplating that TSMC already holds over 60% of the foundry market, mixed with its lengthy roster of industry-leading chip designers as clients and the rise of customized silicon chipsets, Taiwan Semi is in an awesome place to attain and even surpass the monetary estimates illustrated above.

Monster progress at a cut price value level

As of this writing, Taiwan Semi trades at a price-to-earnings ratio (P/E) of 21. That is according to its 10-year common a number of.

Knowledge by YCharts.

However TSMC’s valuation has compressed considerably over the previous few months with the first trigger being the continued uncertainty round new tariff and commerce insurance policies from the U.S.

Though it is exhausting to foretell when there shall be any reduction from ongoing commerce negotiations, I are usually within the camp that believes progress shares are oversold proper now. From a macro perspective, tariffs can change at any level, and the present insurance policies aren’t going to final eternally. Buyers are overstating the impression tariffs may need on TSMC’s enterprise within the brief time period whereas underestimating how shiny the corporate’s long-term alternative is.

Not like an funding in Nvidia, shopping for TSMC inventory roughly serves as a long-run guess on total chip demand and AI infrastructure spending. In different phrases, no matter which firm’s chips or information heart gear are experiencing probably the most demand — TSMC stands to learn.

That places the corporate in the course of a budding, generational megatrend. Taiwan Semi’s progress prospects are the most effective they have been in at the least the final decade, and but, the corporate’s valuation is unchanged from its 10-year common and even represents a reduction to the S&P 500 index.

Put all of it collectively, and you’ve got a transparent case for why Taiwan Semi is the highest chip inventory to personal for the subsequent decade.