Taiwan Semiconductor Corporation (abbreviated as TSMC) is a clear winner in the AI era, steadily increasing its market share.
Nvidia's growth outlook looks solid, and the impending arrival of Rubin chips is also expected to provide a boost for TSMC.
TSMC stock remains an attractive value despite its strong 2025 performance.
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There's something refreshing about the new year. This is a great opportunity for a fresh start, bringing new ideas to your stock portfolio.
The calendar is about to turn a page, but as it has been for most of the past few years, artificial intelligence (AI) will continue to be a hot topic in 2026. Despite huge hype and soaring stock prices, some AI stocks still represent attractive value today.
taiwan semiconductor manufacturing(NYSE:TSM)The company, also known as TSMC, was no slouch in 2025. The stock price rose more than 50%. Still, it might be the best AI stock to buy in January. Here's why the stock could continue to rise.
Microchips are used in every electronic device, from AI data centers to smartphones. Many companies that sell them include: Nvidia or advanced micro devicedesign them and outsource their manufacture to companies called foundries that have the expertise and equipment to build them.
It may not be an exaggeration to say that Taiwan Semiconductor is the world's largest foundry and dominates the industry. Counterpoint Research estimates that TSMC's market share (by revenue) in the global foundry market was approximately 72% at the end of the third quarter. samsung was the closest competitor at only 7%.
Perhaps more impressively, TSMC is actually increasing its market share during this AI investment cycle, even as demand for AI chips soars. By mid-2024, the market share will be 65%.
Chip manufacturing is a complex task. Given the money at stake, with hundreds of billions of dollars being poured into AI, chip companies are flocking to TSMC's scale, equipment and proprietary processes.
No other company can build as many high-end chips as quickly. They are certain and have value.
Nvidia, a leading AI company, has a close partnership with TSMC on graphics processing units (GPUs), including the Hopper architecture and its successor, Blackwell. Naturally, innovation continues, with its Rubin architecture being the next step and expected to hit the market in 2026.
TSMC is building Rubin using an advanced 3-nanometer process to deliver higher performance with less power consumption. Nvidia recently touted a $500 billion backlog. That means the company, which has generated $187 billion in sales over the past four quarters, is poised to continue its impressive growth trajectory.
TSM Revenue (TTM) data by YCharts. TTM = trailing 12 months.
Nvidia's AI success has had an impact on TSMC, whose own revenue growth has accelerated dramatically over the past few years. In fact, Nvidia tried apple Currently, it is TSMC's largest customer.
Unless AI spending unexpectedly collapses broadly, NVIDIA's massive order backlog will likely help push TSMC's business to new heights as those orders flow into foundries. Fortunately for investors, the stock appears to have room to continue rising.
The company's price-to-earnings ratio is just under 30 times TSMC's full-year profit forecast for 2025. This may seem high, but as explained above, the company is likely to continue to grow rapidly. Analysts expect profits to rise by an average of nearly 29% a year over the next three to five years.
When we compare TSMC's growth rate and valuation using the price-to-earnings ratio (PEG), the ratio is around 1, indicating that the stock is very attractive at its current price. I'm often willing to pay a PEG ratio of around 2-2.5 to buy quality stocks, and TSMC certainly meets that criteria as the world's leading chip foundry.
So even if TSMC's growth is slightly lower than analysts expected, investors still have a good chance of achieving strong returns over the long term. The company's mission-critical role in the AI boom has given the stock a relatively high floor, with enough upside potential to make it a strong investment idea heading into January.
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Justin Pope has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
Could this be the best artificial intelligence (AI) stock to buy in January? Originally published by The Motley Fool
