The average person who deals with artificial intelligence or AI (typically through generative AI apps like OpenAI's ChatGPT and Alphabet's Gemini) is aware of what it can do, but many aren't aware of just how those tools can work so effectively. One answer is the chips that power the data centers that make training and scaling up AI possible.
When it comes to manufacturing these AI chips, there's one company that's light-years ahead of its competition: Taiwan Semiconductor Manufacturing (TSM +0.55%) (TSMC). After rising over nearly 54% in 2025, TSMC has a market cap of over $1.7 trillion, making it one of only 11 companies in the trillion-dollar club (as of Jan. 13).
Considering how successful TSMC's 2025 was, is the stock still a buy right now, or should investors be worried about the high valuation? In my opinion, it's easily the former.
Image source: TSMC.
There's a new moneymaker in town
TSMC uses a foundry model, manufacturing chips for companies' products rather than selling them to the general public. For example, Apple will design the chips it needs for its latest iPhone and take the design to TSMC, and TSMC will use its manufacturing power to create the physical chip.
For a while, smartphones were TSMC's biggest moneymaker. It manufactured chips for companies like Apple and Qualcomm. However, with the increased demand for advanced AI chips, the high-performance computing (HPC) segment has taken the throne over the past couple of years.
| Quarter | Revenue From HPC | Revenue From Smartphones |
|---|---|---|
| Q3 2025 | 57% | 30% |
| Q3 2024 | 51% | 34% |
| Q3 2023 | 42% | 39% |
| Q3 2022 | 39% | 41% |
| Q3 2021 | 37% | 44% |
Data source: TSMC.
Looking specifically at dollars, here's how much the HPC segment has made for TSMC in those quarters:
- Q3 2025: $18.87 billion
- Q3 2024: $11.99 billion
- Q3 2023: $7.26 billion
- Q3 2022: $7.89 billion
- Q3 2021: $5.51 billion
The explosion in HPC revenue -- from $7.26 billion in Q3 2023 to $18.87 billion in Q3 2025 -- aligns with the increased demand for advanced AI chips and data center expansions. For perspective, TSMC's HPC revenue in Q3 2025 exceeded its total revenue in Q3 2021 ($18.87 billion versus $14.88 billion).
NYSE: TSM
Key Data Points
Flourishing beyond AI chips
AI chips have gotten a lot of attention for TSMC recently (and rightfully so), but if you're investing in the company, you know you're getting a staple in the tech company outside of just AI chips. Everything from smartphones to computers to TVs to cars to tablets relies on TSMC-manufactured chips.
So even if AI demand cools -- which it likely will in the near future -- TSMC's business will probably remain strong. Its revenue growth might slow down, but it will maintain the core value it brings to the tech world.
TSMC isn't the only chip manufacturer in town, but it's by far the most effective. Compared to companies like Samsung Electronics and Intel, TSMC produces more, has more advanced technologies, and has higher yields (the percentage of chips that work as intended). That's why it has become the go-to company for manufacturing.
In the general chip foundry industry, TSMC stands alone at the top with around 72% market share. Samsung is in second place with a 7% market share. When it comes to advanced AI chips, TSMC's market share is well over 90%.
TSMC can be a staple in your portfolio
Over the past five years, TSMC has averaged annual returns close to 22%. I wouldn't invest in the company expecting that to continue long-term, but its trajectory points toward continued dominance in its industry.
TSMC has established itself as indispensable in the tech world. Without it, tech products would surely take a step back in quality, creating a domino effect that would be hard to stomach. That's a competitive moat that makes it a great long-term investment, with all the characteristics you'd want in a staple of your portfolio.
