This Is Why I’m Buying Taiwan Semiconductor Stock in 2026

Look around your home, and you'll see just how prevalent semiconductors are in your everyday life— smartphones, laptops, TVs, gaming devices, tablets and all the smart appliances you might have. 

Taiwan Semiconductor Manufacturing (TSMC), the world's largest foundry, is the company behind the chips that power these products. 

TSMC has a simple but very effective model - it only manufactures chips for customers who design their own chips. For instance, Apple designs the chips inside the new iPhone; Nvidia designs GPUs; Amazon designs. Then TSMC turns that design into a physical product - they do this accurately, dependably & at a scale that most competitors can only wish to achieve. 

Building a manufacturing capability to compete with TSMC would require tens of $100 million's in capital investment, unique engineering talent, and state of the art fabs—and this is why TSMC is a recurring destination for customers needing chip manufacturing.

The rise of AI includes applications that are available directly to customers like ChatGPT, as well as large amounts of investment into both cloud and data center infrastructure. There is also the additional component of producing high-speed and high-performance processing hardware that companies such as Nvidia, Advanced Micro Devices, and Broadcom use for these purposes. 

There is no easy way to identify which company produces the top-performing processors this week, but one thing that is true for all of them is the fact that they are all completely reliant on TSMC for producing the cutting-edge chips. 

In automotive terminology, they design the vehicle, but TSMC builds the assembly line where it can be manufactured. Therefore, in the total space of AI demand, TSMC is the ultimate aggregator. 

There is no other foundry in the world that comes close to matching TSMC's efficiency and scale, and in terms of the maturity of their advanced AI chip offerings, TSMC has a market share that is in the upper 90s, while Samsung and Intel are far behind. 

While TSMC will not be providing the servers that make up the data center infrastructure, they will certainly provide all of the chips that go inside those systems.

Uninterrupted infrastructure and massive datasets are required to run large-scale AI. Data centers facilitate the rapid processing of vast amounts of data while consuming substantial amounts of electricity to support continuous operations.

For example, AI queries require approximately 10 times more electricity than traditional Google searches do, illustrating the importance of both efficiency and absolute performance. 

Spending on data centers is skyrocketing because companies such as Alphabet, Amazon, and Microsoft will spend billions over the next year and beyond on expanding their operations to handle the tremendous demand for processing power more effectively. 

Jensen Huang of Nvidia estimates that total capital expenditure for global data centers will hit between $3 trillion and $4 trillion by 2030 (up from about $600 billion projected by 2025), while AMD expects there will be $1 trillion worth of computing opportunities by the end of the decade. 

Since the start of the supply chain always returns to TSMC, the data center cycle still looks to be in its infancy.

TSMC manufactures semiconductor products across many markets, including smartphones, autonomous vehicles, and AI technology for 500+ customer products with TSMC semiconductors powering over 12,000 different products.

Additionally, TSMC has created the modern foundry industry (34% market share) and has manufactured about 85% of semiconductor startups' prototype chips. Broad product offering allows TSMC to capitalize on the AI boom without being dependent on it, while maintaining a strong customer base across most major technology companies.

TSMC has an advantage beyond its size. TSMC's A14 manufacturing process is projected to produce chips that will be quicker by 15%, yet will consume 30% less power than the previous generation chips. 

Meanwhile, TSMC's 2nm generation, which is getting ready to enter production, is expected to consume 25-30% less electrical power than 3nm chips will consume at equivalent running speeds. 

This is certainly good news to data center owners as they face millions of dollars in yearly expenses due to high electricity consumption; thus, TSMC's efforts to develop additional energy-efficient nodes will help address one of the main restrictions facing the AI infrastructure build-out: the availability of electrical power.

TSMC's global diversification continues to shape the company’s footprint. It opened an 8-inch wafer facility in Arizona and began producing its first chip—an Nvidia Blackwell chip—in October 2020. 

The company has committed USD165 billion to Arizona and is evaluating the need for additional U.S.-based factories in the coming years. TSMC’s U.S. presence will allow the company to build manufacturing capacity to meet future growth and mitigate the effects of tariffs on American-based companies that conduct business through TSMC.

Many of the top hedge fund managers are in agreement on a specific investment thesis. 

Four well-known hedge funds have significant stakes in Taiwan Semiconductor Manufacturing Company; they are: Chase Coleman of Tiger Global Management (4% of the total portfolio), Steve Mandel of Lone Pine Capital (6.2%), David Tepper of Appaloosa Management (4%), and Daniel Loeb of Third Point (3.7%).

The Securities and Exchange Commission (SEC) regulations allow publicly-filed 13-Fs to be disclosed up to 45 days after the end of each quarter, thus investors can only see what positions were taken by these funds after they have been taken. 

Because the public disclosure process does create a lag time between position-taking and public disclosure, it is reasonable to assume these four hedge fund managers still hold their positions in TSM, or they would have sold them in the interim. 

While blindly duplicating trades is not a sound strategy, when there are multiple seasoned funds with high conviction in a single company, this investment signal could be beneficial.

Given TSMC's lead in the advanced AI semiconductor market, one would expect TSMC's stock (TSM) to trade at a premium. 

TSM is currently trading at around 31x its projected earnings – noticeably lower than many of its peers, such as Nvidia (NVDA), AMD (AMD) and Broadcom (AVGO), which have also seen strong growth in sales and earnings, but none of these companies have manufacturing capabilities across every semiconductor type that is critical to the infrastructure for AI.

Given this relative undervaluation, we see a compelling opportunity for long-term investors. TSMC's unmatched position in the production of the world's most advanced chips puts it in a strong position for the AI supply chain, and it will very likely appreciate greatly in value as demand for AI chips continues to grow. 

In addition, there is a major growth cycle that will start accelerating after January 2026. Therefore, TSMC has the unique combination of current value and a strong long-term position.

While selecting a single stock for indefinite investment is mainly an exercise of the mind, TSMC satisfies many criteria as a potential stock to purchase. Various manufacturers are expanding their computing capabilities, and while chip design leads change often, the contract manufacturer making the most sophisticated chips continues to thrive. 

Severe demand for AI will continue to flow through TSMC and its Arizona factory expansion, combined with extraordinary ongoing technology advancement, will make this flow even stronger. 

The attractive price-to-earnings ratio and diversity of millionaire investors create a strong future outlook for all investors, regardless of experience level, wanting consistent exposure to the "bedrock" of future AI and advanced electronics, are well served with TSMC as the number one stock.

To determine whether TSMC is an attractive investment, examine three factors. 

First, TSMC is positioned as the neutral manufacturing partner for nearly all major design houses in the AI and semiconductor industries, thus giving TSMC opportunities to support multiple winners or "picks" across the two industries. 

Second, TSMC commands a share of over 90% of the advanced AI chip market and continues to expand its leadership in the market by developing new processes that require less power consumption than previous generations of chips—thereby addressing an energy bottleneck in many data centers. 

Third, TSMC has strong financial fundamentals; its report from Q4 2025 disclosed expanding margins, growing revenues at increasing rates, and greatly diversified end-user market segments that go well beyond AI. Even if the expected levels of funding for hyperscale cloud service providers does not materialize, TSMC will continue to have a critical role in all current technologies being developed today.