The S&P 500 has been in a bull market for more than three years now, entering this territory in October 2022, and the good news is that the index is expected to sustain its rally in 2026 as well.
After recording three consecutive years of double-digit gains, a feat that the index has achieved five times since it came into existence in 1957, Wall Street is looking forward to another year of robust growth in the S&P 500. Deutsche Bank, for instance, expects the S&P 500 to hit 8,000 points by the end of 2026, suggesting potential gains of 15% from current levels.
Additionally, financial services firm Carson Group's chief market strategist Ryan Detrick points out that once a bull market is three years old, it tends to stretch up to eight years on average, citing data going back to 1950. All this indicates that 2026 could turn out to be another good year for the stock market, and artificial intelligence (AI) is set to play a key role in driving more gains this year.
JPMorgan points out that strong capital spending and earnings growth fueled by AI are going to be a catalyst for stocks in 2026. That's why now is a good time to take a closer look at a key company that's playing a central role in driving AI adoption -- Taiwan Semiconductor Manufacturing (TSM +0.42%) -- before the stock market heads higher in the new year.
Image source: TSMC.
TSMC will keep benefiting from terrific AI demand this year
Taiwan Semiconductor is the world's largest semiconductor foundry, manufacturing chips for all the leading chip designers and consumer electronics companies. That explains why it has been growing at a healthy pace in the past couple of years. TSMC's share of the foundry market stood at an incredible 72% in the third quarter of 2025, according to Counterpoint Research. Its fabrication plants that produce advanced chips for customers, such as Nvidia, Qualcomm, Broadcom, Apple, Sony, Advanced Micro Devices, and others, are reportedly running at full capacity.
This isn't surprising as the cutting-edge nature of TSMC's advanced manufacturing nodes means that chip designers are able to pack in more transistors into a smaller area on chips fabricated by the Taiwan-based giant. As a result, TSMC-made chips are both powerful and power-efficient, making them ideal for various applications, including data centers, smartphones, and personal computers (PCs).Deloitte estimates that $250 billion to $300 billion could be spent on AI data center chips alone this year, up from an estimated $150 billion last year.
This explains why the overall semiconductor market is expected to grow by 26% in 2026 to $975 billion as compared to last year's 22.5% increase. All this is great news for TSMC as it will now be manufacturing more chips for its customers this year.
NYSE: TSM
Key Data Points
Not surprisingly, Goldman Sachs has just hiked its price target on TSMC stock by 35%, pointing out that AI will continue driving demand for its fabrication services in the new year. The investment bank's analysts also note that AI will continue to be a multi-year growth driver for TSMC. It is easy to see why that's the case, as the market for AI chips could top a whopping $1 trillion by 2030, according to AMD.
So, TSMC seems poised to sustain its outstanding growth beyond 2026. That's why now would be a good time to buy this semiconductor stock before it heads higher this year and makes investors even richer in the long run.
NYSE: TSM
Key Data Points
Investors can expect the stock to soar impressively in 2026
Consensus estimates predict a 25% increase in TSMC's earnings in 2026, down from the 48% growth that it is estimated to have clocked in 2025. However, the company could easily exceed Wall Street's expectations. Goldman Sachs points out that TSMC's margins are improving even as the company invests heavily to add more production capacity.
For instance, TSMC's production capacity of 2-nanometer (nm) chips could double by the end of 2026. Importantly, the company has completely sold out its existing 2nm production capacity, according to third-party reports. Given that TSMC is reportedly going to charge a premium of 10% to 20% for its 2nm nodes over the 3nm node, it would be easy for the company to record much stronger growth in earnings this year as compared to what analysts are projecting.
Assuming TSMC can replicate its 2025 earnings growth of 48% in 2026, its bottom line could jump to $15.43 per share (based on last year's estimated earnings of $10.43 per share). TSMC is trading at 26 times forward earnings right now, a discount to the Nasdaq-100 index's earnings multiple of 33. But if the company outperforms Wall Street's expectations during the course of the year, it could trade in line with the index's average.
If that's the case, TSMC stock could jump to $509 in a year, a potential increase of 58% from current levels. However, higher gains cannot be ruled out considering its cheap valuation and the ability to clock faster earnings growth on account of the catalysts discussed above. This is why it's a good idea to buy this AI stock before it soars higher.
