Taiwan Semiconductor Manufacturing(NYSE: TSM) Although we cannot design artificial intelligence (AI) chips, it is a company that all AI chip manufacturers rely on. AI Giants relies on TSMC to manufacture chip designs that calculate numbers. Therefore, TSMC is the safest long-term play in the AI infrastructure field.
Let's take a look at what makes your company special.
TSMC is the world's most advanced semiconductor foundry, and counts the world's leading chip designers among its top customers. nvidia, Advanced Micro Devices, Broadcomand apple. There is scale and technical leadership that rivals cannot match. Intel While Samsung's yield issues continue to be a problem, it is burning cash in an attempt to establish its mint business. This means that TSMC leads a large market share in the advanced node market, and is not particularly close.
A node refers to the size of the transistor used in the chip measured in nanometers. The smaller the node, the more transistors you can pack into the chip, increasing performance and power efficiency. Small nodes are becoming a large part of the TSMC mix. Chips and small nodes created at 7nm accounted for 73% of first quarter revenue, up from 65% a year ago. That 3NM node accounted for 22% of revenue, and Apple booked much of its 2NM supply of its future products. Even Intel uses TSMC's 3NM technology for some of the most advanced chips. That's a lot to say.
Clear leadership in the TSMC space also gives the company strong pricing power. Between increasing demand and higher prices, this is driving both strong revenue growth and improved gross profits. Revenue for the last quarter increased 35% to $25.5 billion, led by the growth of high-performance computing (HPC). It follows the second quarter, with the company reporting a reserve revenue growth of 39% to $31.9 billion, as estimated by Reuters.
Despite the new fab ramping, the margin remains strong. The total margin rose to 58.8% in the 190 quarter despite the fact that Arizona and Japan's fabs are still rising and weighing on profitability. TSMC expects these new facilities to dilute 2-3 percent points this year, but the company has already raised prices to offset the pressure. Reports say TSMC will raise AI chip prices this year, as Arizona chips could lead a 30% premium.
TSMC is not completely risk-free. Geopolitical tensions around Taiwan have always been part of the story, and while there is no immunity to US tariffs and policy changes, TSMC is already dealing with both by expanding its footprint globally. The company is working with its largest clients to build new fabs in the US, Japan and Europe.
However, what makes TSMC the safest AI semiconductor stock is its position in the semiconductor value chain. Ultimately, it doesn't matter which company wins the AI chip race. TSMC's success is related to overall AI chip demand, not to the product of one company.
Demand for AI chips has not slowed either. TSMC previously predicted that its AI-related revenues would grow at an average growth rate (CAGR) tailored to a 40% mid-term period from 2024. This started in 2024. We also work closely with our customers to measure capacity expansion accordingly. Top customers book future supply, so they are sure to recognize future growth.
Meanwhile, autonomous driving allowed us to see the tailbone that surpasses AI. Robotaxis is beginning to take off and gain traction, and all of these vehicles need to be equipped with advanced chips. It's still too early, but when robotaxis and autonomous driving become commonplace, TSMC becomes a major beneficiary.
A semiconductor wafer manufactured.
In AI Chip Battles, TSMC is essentially an AI Arms dealer. There's no need to bet on who will dominate the chip market. Because it sells manufacturing services to all of them. For investors who want to be exposed to AI semiconductors without betting on a single chip maker, TSMC is the safest way to play it.
The stock is also valued attractively and trades at a 24x positive price (P/E) ratio based on analysts' 2025 estimate and a price/revenue ratio (PEG) below 0.7. Inventories with a PEG ratio of less than 1 are usually considered undervalued.
TSMC brings it all together and is one of the best and safest stocks to buy in the semiconductor space now.
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Geoffrey Seiler has no position in any of the stocks mentioned. Motley Fool recommends and recommends semiconductor manufacturing in Advanced Micro Devices, Apple, Intel, Nvidia and Taiwan. Motley Fool recommends Broadcom and the following options are recommended: Motley Fools have a disclosure policy.
Prediction: Taiwan Semiconductor Manufacturing Stock is the safest AI chip bet originally issued by The Motley Fool
