There are numerous stocks capitalizing on several growth trends currently, with one of the most significant being artificial intelligence (AI). Not every stock is a smart buy right now, but there is one that stands out above the rest as potentially the smartest stock pick.
My smartest growth stock to buy now is Taiwan Semiconductor (TSM 1.64%). It occupies a crucial position within the chip fabrication industry and has massive tailwinds blowing in its favor. It also doesn't appear to be overly expensive, considering the growth it's expected to achieve over the next few years, making it an excellent stock to consider now.
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TSMC's new chip node has high expectations
Taiwan Semiconductor is in an enviable position within the chip world. It has a dominant grip on the chip fabrication market, mainly due to its cutting-edge technology, superior yields, and neutral position.
Taiwan Semiconductor boasts several of the world's top tech companies as clients, including Nvidia and Apple. These companies selected TSMC for the reasons listed above, but one of the biggest factors is that TSMC isn't trying to compete with any of its clients on the open market. It's only offering its foundry service to its customers, which assures its clients that it won't attempt to steal any proprietary technology for their own benefit.
Taiwan Semi is also at the forefront of new chip technology, ensuring customers won't have to hop from foundry to foundry to access the latest technology. Later this year, TSMC is launching its 2nm (nanometer) chip node, and its 1.6nm node is scheduled for production next year. Management is excited about its 2nm node, as demand for this technology is exceeding that of 3nm and 5nm launches. This could indicate upcoming growth for TSMC, as the improvements that 2nm provides are drastic enough that the companies are willing to adopt this cutting-edge technology.
The biggest improvement 2nm chips provide over previous generations is their power consumption. When configured for the same speed as 3nm chips, they consume 25% to 30% less power. Considering power consumption is a significant sticking point for AI, this improvement could lead to numerous upgrades, as the enhanced technology may pay for itself over its operational life.
There are several reasons TSMC's stock looks promising, but how does its projected growth and valuation compare?
Taiwan Semiconductor doesn't trade at a premium
At the start of 2025, management projected that its AI-related revenue would increase at a 45% compound annual growth rate (CAGR) over the next five years, with total revenue increasing at nearly a 20% CAGR. That's incredible growth, and everything TSMC has done so far in 2025 backs up that claim, if not advances it a bit further.
TSMC's Q2 revenue increased 44% in U.S. dollars, which beat expectations. It also indicated 38% revenue growth for Q3, which is still an impressive figure considering its size.
Taiwan Semiconductor is experiencing incredible growth and is expected to continue doing so for some time. However, the stock doesn't trade at much of a premium to the broader market. With the S&P 500 trading for 23.8 times forward earnings, TSMC's 24.6 times forward earnings doesn't look all that pricey.
TSM PE Ratio (Forward) data by YCharts
Essentially, you're buying a company that trades for the same price as the S&P 500, yet it is expected to grow at twice its historical average through 2030.
That makes TSMC a no-brainer buy here, and I believe it's one of the smartest growth stocks for investors to buy now.
