Taiwan Semiconductor Manufacturing: The AI Chip Stock to Buy Over the Next 10 Years

Taiwan Semiconductor Manufacturing (TSMC) is the leading semiconductor foundry, manufacturing chips for major AI developers. Its business model is agnostic to chip type, providing structural demand visibility and unmatched market share. The company's dominance is expected to accelerate as AI infrastructure spend rises. TSMC's valuation reflects a robust growth outlook, improving earnings prospects, and a declining risk premium.

Taiwan Semiconductor Manufacturing (TSMC) is on track to become the first semiconductor firm to breach a $2 trillion market cap, driven by its unparalleled dominance in the AI chip market and undervalued growth potential. As of August 2025, TSMC commands a market capitalization of approximately $1.197 trillion, reflecting its pivotal role in the global AI infrastructure boom [1]. However, with AI-related revenue projected to grow at a 45% compound annual growth rate (CAGR) through 2029 and a forward P/E ratio of just 23.14—well below the semiconductor industry average—TSMC’s valuation appears to understate its long-term potential [2][3].

Financial Performance: A Foundation of Resilience
TSMC’s Q2 2025 results underscore its financial strength. The company reported a 61% year-over-year surge in net income to NT$398.27 billion and revenue of NT$933.80 billion, a 38.65% increase, driven by robust demand for AI and high-performance computing (HPC) chips [2]. The HPC segment alone accounted for 60% of TSMC’s revenue, up from 52% in the same period in 2024, as advanced-node manufacturing (below 7nm) became critical for AI accelerators and GPUs [1]. For Q3 2025, TSMC guided revenue between $31.8 billion and $33.0 billion, with net income exceeding $10 billion—well above Wall Street expectations [3]. This performance positions TSMC to achieve a 30% revenue growth in 2025, fueled by AI infrastructure spending expected to reach $375 billion in 2025 and $500 billion in 2026 [3].

Strategic Positioning: The AI Supply Chain’s Linchpin
TSMC’s leadership in advanced manufacturing and packaging technologies has cemented its role as the go-to foundry for AI innovation. The company holds a 100% market share in AI data center logic semiconductors, producing chips for NVIDIA, AMD, Intel, and custom accelerators for cloud giants like Microsoft, Amazon, and OpenAI [3]. Its collaboration with NVIDIA on the Blackwell AI chip—built using TSMC’s 3nm and 5nm nodes—highlights its strategic alignment with the AI era [3]. Additionally, TSMC’s $165 billion U.S. investment plan, including three new Arizona fabrication plants, ensures tariff exemptions and expands its capacity to meet surging demand [3].

Advanced packaging technologies like CoWoS further differentiate TSMC. These innovations enable the integration of multiple chiplets and high-bandwidth memory (HBM), essential for large language models (LLMs) and next-generation AI workloads [3]. With the global semiconductor market projected to grow to $1 trillion by 2030 [3], TSMC’s 35% share of the “Foundry 2.0” market and its mid-30% annual revenue growth in this segment position it to capture disproportionate value [5].

Valuation Metrics: A Compelling Case for Upside
Despite its dominance, TSMC’s valuation remains attractive. A forward P/E ratio of 23.14 and a PEG ratio of 1.08 suggest the stock is fairly priced relative to its projected earnings growth [2]. In contrast, peers like AMD and Broadcom trade at P/E ratios of 96.7x and 105.6x, respectively [3]. Analysts argue that TSMC’s P/E is undervalued given its 45% CAGR in AI-related revenue and 20% CAGR in overall revenue through 2029 [1]. Morningstar estimates AI chip revenue could account for 50% of TSMC’s total revenue by 2029, driven by mid-40s growth rates in the segment [2].

The broader semiconductor industry’s PEG ratio of 0.55 in 2025 further underscores undervaluation relative to growth expectations [3]. With TSMC’s revenue expected to grow 38% in 2025 and 22% annually over five years [2], its valuation appears to lag its fundamentals. A 12% total return annually—combining 11% CAGR in market cap growth and a 1% dividend yield—could see TSMC reach $2 trillion by 2030 [1].

Conclusion: A $2 Trillion Future
TSMC’s strategic positioning in the AI era, coupled with its undervalued metrics, makes it a compelling long-term investment. As AI infrastructure spending accelerates and TSMC expands its U.S. footprint, the company is poised to outperform even its most optimistic forecasts. With a PEG ratio in line with growth and a market cap still below its intrinsic value, TSMC’s journey to $2 trillion is not just plausible—it is inevitable.

References:
[1] TSMC (TSM) - Market capitalization [https://companiesmarketcap.com/tsmc/marketcap/]
[2] TSMC's Recent Underperformance: A Strategic Buying Opportunity [https://www.ainvest.com/news/tsmc-underperformance-strategic-buying-opportunity-earnings-optimism-valuation-adjustments-2508/]
[3] TSMC: King Of Data Center AI [https://semiengineering.com/tsmc-king-of-data-center-ai/]