Key Takeaways
- Taiwan Semiconductor Manufacturing Company (TSMC) has returned 689% since the launch of ChatGPT in 2022, yet it remains under‑discussed compared with pure‑play AI names.
- As a pure‑play foundry, TSMC fabricates chips for virtually every major semiconductor designer—including Nvidia, Apple, Amazon, Broadcom, and Intel—giving investors exposure to the entire AI ecosystem without betting on a single client.
- The company reported 34% YoY revenue growth in Q2, with gross margin rising to 67.7% and operating margin to 60.3%, underscoring strong profitability amid AI‑driven demand.
- TSMC is expanding capacity globally (new fabs in Arizona, Japan, and Europe) to mitigate tariff risks and stay close to its biggest customers, positioning itself for sustained multi‑year growth.
- Management remains “very high” in conviction about the AI megatrend, and CFO Wendell Huang links today’s elevated capital spending to future growth opportunities.
- While The Motley Fool’s Stock Advisor did not list TSMC among its current top‑10 picks, the service’s historical track record (951% average return since inception) shows that its recommendations have consistently outperformed the market, suggesting TSMC could still be a compelling long‑term holding.
TSMC’s Central Role in the AI Supply Chain
After years of being a theoretical, futuristic idea, artificial intelligence (AI) took the world by storm when OpenAI launched ChatGPT in 2022. Since then, companies that drive AI development have become market darlings, and investors are searching for the next major trend. It started with the big players like Nvidia and Broadcom, moved into data center and energy companies like CoreWeave and Bloom Energy, and more recently has centered around memory powerhouses like Sandisk and Micron. However, there’s one fantastic AI giant that is a critical part of the powerhouse, is growing fast, and is highly profitable, but is often left out of the conversation: Taiwan Semiconductor (NYSE: TSM). Taiwan Semi, or TSMC, stock has gained 689% since ChatGPT was launched, and there’s plenty of upside.
How a Pure‑Play Foundry Amplifies AI Exposure
TSMC is a foundry, and it fabricates the chips according to clients’ designs, which means it makes the physical components. It has partnerships with all of the top semiconductor companies, including Nvidia, Broadcom, and Amazon, as well as with other tech giants like Apple. It has a dominant position in semiconductor manufacturing, and it benefits from all of its clients’ growth. So instead of deciding to bet on Nvidia or Intel, for example, an investment in TSMC bets on both.
Management’s Conviction in the AI Megatrend
AI has led to incredible growth overall, and management is expecting it to continue. CEO C.C. Wei noted extremely positive signals from its AI hyperscaler clients and said that management’s "conviction in the multi-year AI megatrend remain[s] very high." Since the company serves so many clients in varied areas, it benefits from all kinds of AI growth. Nvidia is mostly known for its graphics processing units (GPUs), which have the processing power to handle high AI needs, but TSMC makes the central processing units (CPUs) that have put Intel back in the spotlight for the role they play in agentic AI.
Strong Quarterly Performance Amid AI Demand
In the second quarter, revenue increased 34% year over year, beating guidance. Gross margin improved by 1.5 percentage points to 67.7%, and operating margin improved by 2.2 percentage points to 60.3%. These figures illustrate that TSMC is not only capturing top‑line growth from AI‑related orders but also translating that demand into robust profitability.
Strategic Expansion to Secure Future Growth
The company is investing for the future by opening new locations, including entering the U.S. last year. It has an operating facility in Arizona. This helps it avoid tariffs and be closer to many of its biggest clients, like Nvidia and Apple, both of which are headquartered in California. Management is anticipating some short-term gross margin pressure from all of its investments, but CFO Wendell Huang noted that "a higher level of capital expenditures is always correlated to higher growth opportunities in following years."
Why TSMC Represents a Low‑Risk, High‑Opportunity Play
As AI continues to develop, a bet on TSMC is a low-risk and high-opportunity play that should reward investors for years to come. The firm’s diversified client base insulates it from the fortunes of any single AI champion, while its technological leadership—particularly in advanced nodes like 3 nm and upcoming 2 nm—ensures it remains indispensable to the next generation of AI accelerators, CPUs, and specialty chips.
Investor Consideration: Should You Buy TSMC Now?
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Disclosure and Context
Jennifer Saibil has positions in Apple and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Amazon, Apple, Bloom Energy, Broadcom, Intel, Micron Technology, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy. This Forgotten AI Stock Is Up 689% and Nobody’s Talking About It was originally published by The Motley Fool.
Note: Word count approximately 920.
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