One of the most important artificial intelligence (AI) stocks on the market doesn’t involve the general public. But it arguably plays the most important role in the AI supply chain. the Taiwan semiconductor manufacturing company (NYSE:TSM) (TSMC) is the world’s largest semiconductor (chip) foundry.
I like companies, but Nvidia and AMD TSMC designs chips for hardware and actually manufactures them, turning blueprints into reality. Without TSMC, the AI supply chain will suffer. And while it continues to grow impressively, it still trades at a discount in my view.
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Image source: TSMC.
What makes TSMC stand out?
TSMC’s capabilities are one step ahead of its competitors when it comes to efficiency, scale, accuracy, and yield (the percentage of chips that work as planned).
Companies that need to manufacture chips need reliability or their business can be ruined. TSMC is the most trusted company in the industry. of A reliable choice.
The company’s business once primarily made chips for smartphones, but now, amid the AI gold rush, it’s finding a lucrative path to making advanced AI chips for data centers. The company’s market share has reached the high 90% range.
Best year ever for TSMC
TSMC generated $122.4 billion in revenue in 2025, an increase of nearly 36% from 2024. This was the first $100 billion year in TSMC’s history, and it crossed the mark with a comfortable margin.
Equally impressive is TSMC’s profit margin growth over the past year. In 2025, gross profit margin increased from 56.1% to 59.9%, and operating margin increased from 45.7% to 50.8%. Fourth quarter gross margin and operating margin were 62.3% and 54%, respectively.
Significant revenue growth alongside notable margin expansion reflects TSMC’s operational performance over the past year. It also provides insight into the pricing power at the helm of TSMC, which operates a de facto monopoly on advanced AI chips. If you’re basically the only gamer in town, you can charge a premium for your service.
TSMC seems to be worth a lot
TSMC stock is up about 69% since the start of 2025 (as of January 22), yet it trades at just 25 times next year’s expected earnings. This is much cheaper than semiconductor companies such as: broadcom, intelNvidia.
TSM PE Ratio (Forward) Data by YCharts
Given TSMC’s market power, pricing power, and growth opportunities, its current valuation appears to be a bargain for long-term investors. It’s trading at a slightly higher level than its average over the past few years, but it’s in a much better place now than it was back then.
TSMC is a stock that you can feel safe holding for a long time.
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Stefon Walters works for Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
