In recent years, artificial intelligence (AI) has become a major focus in both news and financial sectors, following the release of ChatGPT by OpenAI in late 2022. This development has led investors to increase their interest in various industry stocks associated with AI, including those in software, hardware, nuclear power, green energy, and cryptocurrencies.
Nvidia has been one of the most significant beneficiaries in the software and hardware sectors. Since ChatGPT’s debut on November 30, 2022, Nvidia’s stock prices have surged by nearly 680%, substantially increasing its market value, positioning it among the world’s most valuable companies.
Although Nvidia’s stock might seem attractive now, seasoned investors recognize that stock prices cannot perpetually rise. Nvidia’s future appears promising, as evidenced by its impressive quarterly results and the success of its Blackwell chips, which have developed into a multibillion-dollar business. However, considering its current market capitalization of nearly $3 trillion, a sevenfold increase over the coming years seems unlikely.
Conversely, Taiwan Semiconductor Manufacturing (TSMC) appears to have more growth potential and is considered a top pick in the AI chip stock market. TSMC plays a critical role in the foundry business. Companies like Nvidia, Advanced Micro Devices, and Broadcom have generated significant revenue from increased demand for GPUs and data center network equipment. However, designing infrastructure systems is only part of the process, and this is where TSMC comes in.
TSMC specializes in fabrication services and is vital in manufacturing advanced chips. Industry research estimates that by the end of 2024, TSMC claimed 67% of the global third-party foundry market. It maintains strong partnerships with major tech sector hardware developers, including Nvidia, AMD, Broadcom, Amazon, OpenAI, Qualcomm, and Apple.
TSMC could potentially widen its market lead. The company’s quarterly revenues and gross profit margins have been rising steadily. Its reinvestment of profits into expanding capacity includes plans to supplement its ongoing $65 billion investment in Arizona chip fabrication plants with an additional $100 billion for R&D and new facilities in the U.S.
In 2025, the stock market has faced challenges, with the S&P 500 and Nasdaq Composite indices showing declines. Technology stocks have been particularly affected, and TSMC shares have fallen by about 12% this year. Despite TSMC’s role as a powerhouse in the AI chip industry, its forward price-to-earnings ratio remains near the company’s three-year average.
Given TSMC’s pivotal role in AI infrastructure and its aggressive expansion strategy, the company’s long-term prospects appear favorable. However, current investor sentiment does not seem to reflect a premium valuation for TSMC stock. For those with a long-term investment outlook, TSMC shares may present a worthwhile opportunity.
In related disclosures, John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Adam Spatacco holds positions in Amazon, Apple, and Nvidia. The Motley Fool holds and recommends positions in Advanced Micro Devices, Amazon, Apple, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing and also recommends Broadcom. They adhere to a thorough disclosure policy.
