Choosing a single stock to buy and hold isn't an easy task. So many factors come into play, such as company longevity, innovation, and competition. Furthermore, you also want to ensure that the company is exposed to some of the biggest growth trends in the market. Otherwise, you could get left in the dust.
After debating with myself for a bit, I reached a conclusion about what stock I would buy and hold if I were limited to just one: Taiwan Semiconductor (TSM 4.37%). This is one of the most important companies on Earth, and it checks nearly every box needed to be the sole stock I buy and hold.
Taiwan Semiconductor has placed itself at the top of an important industry
Taiwan Semiconductor is a chip fabricator. However, it doesn't market any proprietary designs. Instead, it acts as a manufacturing facility for all of its clients, where they design the chip and TSMC produces it.
This allows Taiwan Semi to play both sides of the battle between competitors, like with Nvidia and AMD in the quest for GPU superiority in data centers. This is a win-win for everyone involved, as TSMC doesn't need to spend a ton trying to market its own chips; it just needs to focus on offering the best chip production technology possible. It's part of why TSMC has distanced itself from competitors like Intel and Samsung in the foundry space.
Another advantage is that TSMC is always at the cutting edge of some of the biggest breakthroughs in chip technology. While TSMC can produce industry-leading 3nm (nanometer) chips, it's well on its way to producing 2nm chips. These 2nm chips, when configured for the same computing power as previous-generation 3nm chips, will consume 20% to 30% less energy.
Considering that energy operating costs are a huge focus for the AI giants, this innovation could spark another demand wave in order to save on operating costs. Furthermore, TSMC is also working on its A16 chip, which will provide an additional 15% to 20% energy savings over the 2nm chip.
NYSE: TSM
Key Data Points
According to management, demand for these chips is far greater than that for 3nm or 5nm chips, which is a great sign for investors. The 2nm chips will reach production in the second half of 2025, with A16 reaching production in the second half of 2026. TSMC has a solid track record of being at the forefront of innovation, which makes it a strong candidate for a lone stock to buy and hold.
It's also at the forefront of some of the biggest trends in the market, like artificial intelligence (AI). Management expects AI-related revenue to grow at a compounded annual growth rate (CAGR) of about 45% over the next five years.
Because many of its clients are putting in orders years in advance, TSMC has some of the best visibility of anyone in the industry to understand where AI demand is going. So when it speaks, investors should listen. Overall, management expects a revenue CAGR of nearly 20% over the next five years, so it's clearly a stock with a ton of growth potential.
One potential drawback to the stock is its location: Taiwan. With fears of China taking over the island, there has always been some pessimism surrounding the stock. However, TSMC recently announced that it's expanding its initial $65 billion investment in the U.S. to build new manufacturing facilities by $100 billion, bringing the total to $165 billion. This also helped TSMC sidestep the threat of tariffs, boosting the stock in the short term.
Taiwan Semiconductor has a lot going for it, and there's not much that can derail it. Investing in TSMC is a bet that industries will use more advanced chips, and more of them in general. That seems like a no-brainer bet, which is why Taiwan Semiconductor would be my top pick if I could only buy and hold one stock.
The stock looks primed for more upside
If you don't own shares right now, don't worry; the stock looks like an absolute bargain. Taiwan Semiconductor shares can be had for a mere 19.8 times forward earnings.
TSM PE Ratio (Forward) data by YCharts
Considering that the broader S&P 500 (^GSPC 1.33%) trades for 21.6 times forward earnings, TSMC's stock seems like a steal at these levels, especially considering its projected growth.
TSMC is a no-brainer buy right now, and investors should be scooping up shares while they're cheap.
While Taiwan Semiconductor would be my top stock to buy if I could only own one, that's not a great investment strategy. A much better strategy is to have a well-rounded portfolio made up of at least 25 stocks to increase diversification. I think TSMC is a great addition to nearly any portfolio, and with the stock's current weakness, right now is an excellent time to buy.
