Why TSMC Could Outperform Nvidia Over the Next Decade

The global AI semiconductor race is heating up, with TSMC and NVIDIA as two of its most pivotal players. While both companies are indispensable to the AI revolution, their divergent business models, valuation profiles, and growth trajectories suggest that TSMC may emerge as the stronger long-term investment. Over the next decade, TSMC's strategic positioning in advanced manufacturing, disciplined capital allocation, and resilience to geopolitical headwinds could enable it to outperform NVIDIA despite the latter's dominance in AI software and hardware ecosystems.

Valuation: TSMC's Discounted Premium

TSMC's valuation metrics paint a compelling picture for investors seeking exposure to the AI semiconductor boom without paying the sky-high premiums demanded by pure-play AI leaders like NVIDIA. As of August 2025, TSMC trades at a forward P/E of 20.9x, a P/B of 12.8x, and an EV/EBITDA of 13.3x. In contrast, NVIDIA's metrics are significantly higher: a P/E of 35.57x, a P/B of 52.30x, and an EV/EBITDA of 44.3x. These disparities reflect TSMC's role as a capital-efficient foundry with predictable cash flows, while NVIDIA's premium valuation is tied to its high-growth AI software ecosystem and speculative future earnings.

TSMC's lower multiples are not a sign of undervaluation but rather a reflection of its stable, asset-heavy business model. Its gross margin of 58.6% in Q2 2025 underscores its pricing power and operational efficiency, while its $42 billion 2025 capex plan—focused on 3nm and 2nm node development—positions it to capture AI-driven demand without sacrificing profitability. NVIDIA, meanwhile, trades at a premium because its earnings growth (69% year-over-year in 2025) is tied to the volatile AI market and regulatory risks, such as U.S. export restrictions to China.

Business Diversification: TSMC's Geopolitical Hedge

TSMC's business model is inherently diversified. As the world's largest foundry, it serves a broad client base, including Apple, AMD, and NVIDIA, and is less exposed to the cyclical risks of a single market. Its geographic diversification is equally strategic: while it maintains a strong presence in Taiwan, it is aggressively expanding in the U.S. and Europe. The Phoenix, Arizona, facility, for instance, is already producing NVIDIA's Blackwell architecture and is part of a $165 billion U.S. investment plan. This aligns with global reshoring trends and insulates TSMC from supply chain disruptions in Asia.

NVIDIA, by contrast, is more concentrated in AI and data center markets, which are subject to rapid technological shifts and regulatory scrutiny. Its 92% share of the AI GPU market in Q1 2025 is impressive, but its reliance on China—accounting for 13% of revenue—introduces volatility. The Trump administration's 15% tax on China AI chip exports and the blanket ban on “compliant” chips like the H20 have already forced NVIDIA to pivot to the Middle East, where it is building a $600 billion AI factory with Saudi Arabia's HUMAIN. While this diversification is a positive step, it comes at the cost of margin pressure and regulatory uncertainty.

Long-Term Growth Catalysts: TSMC's Foundry Flywheel

The AI semiconductor ecosystem is entering a new phase driven by generative AI, autonomous systems, and edge computing. TSMC's leadership in advanced packaging (e.g., CoWoS-L) and 2nm/3nm node manufacturing positions it to benefit from the next wave of demand. For example, its CoWoS-L technology, which enables ultra-low-latency, high-bandwidth AI accelerators, is already the de facto standard for NVIDIA's Blackwell and AMD's Instinct MI300X. By 2026, TSMC's CoWoS production capacity is expected to reach 90,000 wafers per month, up from 35,000 in 2024, ensuring it can meet the surging demand for AI chips.

NVIDIA's growth, meanwhile, hinges on its ability to maintain its CUDA ecosystem's dominance. While CUDA's 75% share of AI model training in China is a moat, the company's reliance on software lock-in makes it vulnerable to open-source alternatives like AMD's ROCm or Intel's oneAPI. Additionally, NVIDIA's roadmap—while impressive—requires continuous innovation to stay ahead of competitors like AMD and startups in the AI chip space.

Regulatory and Geopolitical Tailwinds

The U.S.-China trade war has created a dual-layered supply chain, with TSMC and NVIDIA adapting in different ways. TSMC's U.S. expansion aligns with the Biden and Trump administrations' reshoring agendas, making it a geopolitical favorite. Its partnerships with Foxconn and Wistron in Texas further cement its role in U.S. AI infrastructure. NVIDIA, while agile in navigating export controls, faces margin pressures from the 15% tax on China exports and the risk of losing market share to local Chinese chipmakers.

Investment Thesis

For investors with a 10-year horizon, TSMC offers a more balanced risk-reward profile. Its valuation is attractive relative to its growth potential, its business model is resilient to sector-specific shocks, and its long-term catalysts—advanced manufacturing, AI-driven demand, and geopolitical tailwinds—are well-defined. NVIDIA, while a compelling growth story, carries higher volatility due to its premium valuation and exposure to regulatory and technological disruptions.

Actionable Advice: Consider overweighting TSMC in a diversified semiconductor portfolio. Allocate 40% to TSMC for its stable, capital-efficient growth and 30% to NVIDIA for its high-growth AI exposure, with the remainder in cash or defensive plays to hedge against sector-wide risks. Monitor U.S.-China trade policies and AI adoption rates in edge computing, as these will be critical drivers for both companies.

In the AI semiconductor arms race, TSMC's role as the “foundry of the future” may prove more enduring than NVIDIA's software-centric dominance. As the industry shifts from speculative hype to sustainable infrastructure, TSMC's disciplined execution and strategic foresight could make it the decade's top performer.