In This Article:
When investors think of artificial intelligence (AI) and the stock market, one name stands out: Nvidia (NVDA).
The chip giant has been the poster child for the AI boom, with its high-performance GPUs powering everything imaginable. However, as Nvidia’s valuation rises and competition heats up, investors are beginning to look beyond the obvious for high-quality AI investments. Let’s look at some other options.
Taiwan Semiconductor Manufacturing Company (TSM), also known as TSMC, is the world’s largest and most advanced semiconductor foundry. It makes chips designed by companies such as Nvidia, Apple (AAPL), Advanced Micro Devices (AMD), and Qualcomm (QCOM). Essentially, without TSMC, the AI revolution would lack the necessary hardware.
TSM stock has returned 252% in the past five years. So far this year, the stock is up 18.1%, outperforming the 5.7% gain in the S&P 500 Index ($SPX).
TSMC has built an impressive competitive moat by remaining technologically ahead and cultivating long-term relationships with industry titans. Nvidia, one of its largest customers, uses TSMC to manufacture advanced AI chips such as the H100 and GH200, which power AI data centers. With Nvidia’s sales soaring and other AI-focused companies such as AMD and Amazon (AMZN) racing to produce custom chips, TSMC is capturing a sizable share of this rapidly expanding demand.
In the first quarter, total revenue increased 35% year-over-year to $25.5 billion. Management stated that “7-nanometer and more advanced technologies accounted for 73%” of total wafer revenue. Diluted earnings per share increased by 60.4% in the quarter. Geopolitical concerns have loomed large over TSMC due to its Taiwan-centric manufacturing base. However, the company is actively diversifying its footprint. TSMC is developing advanced manufacturing facilities in Arizona, Japan, and Germany with the help of strategic partnerships and government subsidies. The Arizona plant, in particular, is expected to produce 3-nm chips by 2025, placing it among the most advanced facilities in the U.S. This reduces geopolitical risks and aligns TSMC with U.S. efforts to localize semiconductor supply chains.