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Investors often aspire to identify decade-defining investments. Many stocks have consistently outperformed over time, providing early investors with remarkable returns.
One stock that stands out as a potential top chip investment of the decade is Taiwan Semiconductor Manufacturing (TSMC). TSMC holds a leading position in chip fabrication, with impressive growth projections suggesting it may become one of the best stock picks in the upcoming years.
Role of Taiwan Semiconductor in Big Tech
Taiwan Semiconductor is central to the tech industry due to its extensive client base. Leading tech companies such as Nvidia and Apple, which lack in-house chip production capabilities, rely on TSMC to manufacture their designs. Because TSMC functions solely as a fabrication facility without competing against its clients, they can be confident their designs remain secure.
TSMC boasts unmatched production capabilities, making it a pivotal choice for advanced technology. The company currently produces 3 nanometer (nm) chips and plans to introduce 2 nm and 1.6 nm chips by mid-2025 and 2026, respectively. No other company currently matches these capabilities, positioning TSMC as crucial in maintaining technological leadership.
However, there are concerns regarding TSMC’s manufacturing concentration in Taiwan, including potential geopolitical risks with China. Currently, tariffs do not impact semiconductors, and a Chinese takeover would likely trigger significant geopolitical turmoil.
TSMC is investing $100 billion in new U.S. facilities, including manufacturing sites, packaging centers, and a research and development center. Although TSMC’s management and Taiwan’s leadership have denied influence from former President Donald Trump, the expansion aligns with U.S. interests.
Growth Projections and Financial Outlook
Due to its strategic position in the chip industry, TSMC accesses privileged information, with clients often placing orders years ahead. The company’s U.S. production capacity is already sold out through 2027. Management forecasts rapid expansion, with AI-related chips expected to grow at a 45% compound annual growth rate (CAGR) and overall revenue projected to increase by 20% CAGR over the next five years. If these predictions hold, TSMC’s revenue could surge by nearly 150%.
Given its growth prospects, TSMC is considered undervalued, particularly following a marketwide downturn. The stock’s valuation suggests significant growth potential, benefiting from a return to normal price levels.
The broader stock market, represented by the S&P 500, trades at higher multiples of earnings compared to TSMC. Despite its faster expected growth, the stock remains a bargain, making it an appealing investment choice for the coming decade.
Disclaimer: Keithen Drury and The Motley Fool hold positions in Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool also holds and recommends Apple and Nvidia. For more, visit their disclosure policy.
