While buying and holding a single stock in a portfolio is not great investment advice, it is an interesting exercise to determine your highest-conviction stock pick. The ideal stock would be a relatively safe company that has a strong chance of beating the market over the long term. After searching through my personal holdings, it's clear that one company fits the bill: Taiwan Semiconductor (TSM -1.76%).
Taiwan Semiconductor is the world's leading contract chip manufacturer. It makes chips for companies that cannot produce them themselves, which is nearly every company. As a result, Taiwan Semi is tied to nearly every industry and trend. I think this makes for a compelling investment case, and it would be my only holding if I were forced to select a single stock.
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Taiwan Semiconductor has risen to the challenge of diversifying its production
Among Taiwan Semiconductor's clients are Apple (NASDAQ: AAPL), Nvidia (NASDAQ: NVDA), AMD (NASDAQ: AMD), and Broadcom (NASDAQ: AVGO). While Apple may be at the forefront of consumer tech, the other three are in charge in the AI realm. This allows Taiwan Semiconductor investors to benefit from the use of more chips and more advanced technology. Investors also don't have to pick a winner in the AI arms race, as there's a high chance that Taiwan Semiconductor chips will be used in whatever device is powering the AI model.
Taiwan Semiconductor has risen to the top thanks to its culture of continuous improvement and consistent delivery. TSMC is a company that its customers can count on and has proven that multiple times.
Most recently, there has been a huge push to move some of TSMC's manufacturing to the U.S. Although President Trump has certainly pressured TSMC to bring manufacturing into the U.S., former President Biden also championed the CHIPS Act, which helped Taiwan Semiconductor fund some of its Arizona production factories. There has been massive demand for domestically produced chips, most notably from Apple and Nvidia, which both plan to use chips from the Arizona fabrication facilities.
Moving more production outside of Taiwan limits the biggest risk associated with Taiwan Semi's stock: a mainland China takeover. Taiwan's politics are messy, and the threat of a Chinese invasion is always present. Should this occur, it would undoubtedly tank TSMC's stock. However, considering how much of the world's chips come from Taiwan, it would undoubtedly crash the rest of the stock market and potentially put the U.S. at war. While TSMC's stock will get smoked more than others, that wouldn't be an ideal scenario for owning any stocks, so I don't consider that as large of a risk as others might.
TSMC checks many boxes for a fairly safe investment, but how does its growth outlook shape up?
Taiwan Semi is projected to deliver strong growth over the next few years
At the start of 2025, Taiwan Semi's management boldly predicted that AI-related revenue would grow at a 45% compounded annual growth rate (CAGR) over the next five years, with overall revenue growth approaching a 20% CAGR. That's market-beating growth, and if TSMC can maintain its margin picture, that will likely translate to such growth, as long as the stock is priced right.
Unlike many other AI stocks, TSMC is priced almost at the same level as the broader market, trading for 22.8 times forward earnings compared to the S&P 500 index's (SNPINDEX: ^GSPC) 22.9.
TSM PE Ratio (Forward) data by YCharts
With Taiwan Semi expecting market-crushing growth over the next five years, combined with a market-average multiple, it's shaping up to be a stock that could easily outperform the market over the next few years. As a result, I think Taiwan Semi is a smart buy now, as it will have one of the easiest paths to outperforming the market over the next five years. This path is why I think Taiwan Semiconductor would be my only stock to buy and hold if I was limited to just one.
