Many people interact with artificial intelligence (AI) but don't have any idea of how the technology reaches the end form where it's used by them. Simply put, it comes down to training AI models on tons of data, which wouldn't be possible without data centers. These contain lots of hardware, much of which runs using AI chips. They're essentially the engines that make modern AI possible.
If you're looking to invest in such a critical part of the AI ecosystem, look no further than Taiwan Semiconductor Manufacturing (TSM 3.38%) -- also known as TSMC. It's one of, if not the, best AI chip stocks to own. Here's why.
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TSMC doesn't design AI chips; it manufactures the chips that companies like Nvidia and Advanced Micro Devices design. And when it comes to manufacturing AI chips, no company comes close to TSMC's process, packaging technology, and scale. That's why it's the go-to for advanced AI chips.
TSMC holds around a 70% market share in the global semiconductor market, but when it comes to advanced AI chips, its market share is well north of 90%. Other companies have been trying to compete with TSMC, but none can match its ability and reliability.
Intel and Samsung have both struggled with consistency and yields (the number of chips that actually work as intended when made), and smaller companies lack the capital it takes to invest in the facilities and technology needed to stay ahead of the curve.
TSMC's leadership in manufacturing AI chips will likely remain for quite some time, and this role has given it pricing power that has begun to reflect in its financials and margins.
