Investing in tech stocks right now can look like a dangerous proposition, given the weakness in the markets of late. If tariffs and trade wars sink the economy into a recession, tech spending could come under pressure, and the growth in artificial intelligence (AI) could slow drastically.
That's why it's crucial for investors to pay attention to valuations and buy stocks that aren't trading at obscene earnings multiples. One stock that AI investors should consider loading up on today is chipmaking giant Taiwan Semiconductor Manufacturing (TSM +2.24%), or TSMC, which has amassed impressive 200% gains over the past five years.
Here's why it still looks like a cheap buy right now.
NYSE: TSM
Key Data Points
Its industry-leading position gives it a huge advantage
Taiwan Semiconductor's foundry business makes up around two-thirds of the global semiconductor foundry market. It's well ahead of the competition, making it highly probable that AI chip designers will continue to rely heavily on its foundry for the foreseeable future. It can benefit from greater economies of scale, putting it in an excellent position to grow and scale while maintaining a high degree of profitability.
Rival Intel has been struggling to provide sustainable, long-term competition, and its foundry business has incurred significant losses. In 2024, they totaled $13.4 billion, which was nearly double the $7 billion loss the foundry unit incurred a year earlier.
Taiwan Semiconductor, meanwhile, expects to generate operating profit margins of around 47.5% in its first-quarter results this year. The company also recently announced plans to invest an additional $100 billion into production in the U.S., on top of the $65 billion it has planned already for manufacturing operations in Arizona. The move could help the company avoid tariffs in the U.S. while also expanding its reach.
Thanks to its solid earnings, the stock's valuation looks attractive
TSMC's stock has seen a massive 200% stock gain over the past five years. Yet, because of the company's high profit margins and rapid business growth, its price-to-earnings (P/E) multiple has remained relatively low. Currently, the stock trades at a P/E of less than 26, which is incredibly cheap, given that the Technology Select Sector SPDR Fund averages a multiple of 36.
Investors may be discounting the stock due to its Taiwan presence and the risk that could pose from potential tariffs. However, given its dominance in the chipmaking industry and its massive market share, it likely wouldn't be all that easy for U.S. tech companies to simply use other manufacturers for the sake of getting around any tariffs. Its pivotal role in the industry gives Taiwan Semiconductor a considerable competitive advantage and the potential flexibility to pass on rising costs to its customers.
Taiwan Semiconductor may be an underrated buy right now
Taiwan Semiconductor has been a terrific stock to own over the past five years, and with much more growth still on the horizon due to AI, it may not be too late for investors to add this stock to their portfolios. It also looks to be making smart moves, such as investing in the U.S. market, which could help it minimize its risk related to tariffs while also winning over political favor and ensuring it remains a dominant force in the semiconductor foundry market for years to come.
After trading on Tuesday, the stock has fallen 14% since the start of the year, which may be an overreaction to the threat of tariffs. In the long run, Taiwan Semiconductor looks to be a terrific investment to load up on because, for the foreseeable future, tech companies will still need to rely heavily on its foundry business to produce the chips they need for AI.
