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Taiwan Semiconductor Manufacturing holds nearly 70% of the global foundry market.
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Nvidia, AMD, and cloud hyperscalers alike rely heavily on TSMC's fabrication capabilities.
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As AI workloads become more sophisticated, the need for additional chips is inevitable.
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10 stocks we like better than Taiwan Semiconductor Manufacturing ›
When investors debate the future of the artificial intelligence (AI) trade, the conversation generally finds its way back to the usual suspects: Nvidia, Advanced Micro Devices, and cloud hyperscalers like Microsoft, Amazon, and Alphabet.
Each of these companies is racing to design GPUs or develop custom accelerators in-house. But behind this hardware, there's a company that benefits no matter which chip brand comes out ahead: Taiwan Semiconductor Manufacturing (NYSE: TSM).
Let's unpack why Taiwan Semi is my top AI chip stock over the next 10 years, and assess whether now is an opportune time to scoop up some shares.
As the world's leading semiconductor foundry, TSMC manufactures chips for nearly every major AI developer -- from Nvidia and AMD to Amazon's custom silicon initiatives, dubbed Trainium and Inferentia.
Unlike many of its peers in the chip space that rely on new product cycles to spur demand, Taiwan Semi's business model is fundamentally agnostic. Whether demand is allocated toward GPUs, accelerators, or specialized cloud silicon, all roads lead back to TSMC's fabrication capabilities.
With nearly 70% market share in the global foundry space, Taiwan Semi's dominance is hard to ignore. Such a commanding lead over the competition provides the company with unmatched structural demand visibility -- a trend that appears to be accelerating as AI infrastructure spend remains on the rise.
At the moment, AI development is still concentrated on training and refining large language models (LLMs) and embedding them into downstream software applications.
The next wave of AI will expand into far more diverse and demanding use cases -- autonomous systems, robotics, and quantum computing remain in their infancy. At scale, these workloads will place greater demands on silicon than today's chips can support.
Meeting these demands doesn't simply require additional investments in chips. Rather, it requires chips engineered for new levels of efficiency, performance, and power management. This is where TSMC's competitive advantages begin to compound.
With each successive generation of process technology, the company has a unique opportunity to widen the performance gap between itself and rivals like Samsung or Intel.