One of the more important artificial intelligence (AI) stocks on the market isn't one that the public interacts with. However, it arguably plays the most important role in the AI supply chain. It's Taiwan Semiconductor Manufacturing Company (TSM 4.37%) (TSMC), the world's largest semiconductor (chip) foundry.
Although companies like Nvidia and AMD design chips for their hardware, TSMC is the one that actually manufactures them, turning blueprints into reality. Without TSMC, the AI supply chain would suffer. And although it continues to post impressive growth, it's still trading at a discount in my view.
Image source: TSMC.
What makes TSMC stand out?
When it comes to efficiency, scale, precision, and yield (the percentage of chips that work as planned), TSMC's capabilities are a step above its competitors.
Companies that need chips manufactured need dependability, or it could throw off their business. TSMC is the most dependable company in the business, so it's the go-to choice.
Its business used to primarily be making chips for smartphones, but now, amid the AI gold rush, it has found a lucrative lane in making advanced AI chips for data centers. Its market share for them is well into the upper 90% range.
NYSE: TSM
Key Data Points
TSMC's best year yet
TSMC generated $122.4 billion in revenue in 2025, up nearly 36% from 2024. This marked the first $100 billion year in TSMC's history, crossing the mark with plenty of room to spare.
Just as impressive is TSMC's margin growth over the past year. Its gross margin increased from 56.1% to 59.9% in 2025, and its operating margin increased from 45.7% to 50.8%. In the fourth quarter, its gross margin and operating margin were 62.3% and 54%, respectively.
A huge revenue jump alongside noticeable margin expansion is a sign of TSMC's operational execution over the past year. It also gives insight into the pricing power TSMC commands, operating a virtual monopoly on advanced AI chips. When you're basically the only game in town, you can charge a premium for your services.
TSMC looks like a good value
Even though TSMC's stock is up around 69% since the start of 2025 (as of Jan. 22), it trades at only 25 times its projected earnings over the next year. This is much cheaper than semiconductor companies like Broadcom, Intel, and Nvidia.
TSM PE Ratio (Forward) data by YCharts
Considering TSMC's market dominance, pricing power, and growth opportunities, its current valuation seems like a deal for long-term investors. It's trading a bit higher than its average over the past few years, but the business is also in a much better position now than it was for much of that time.
TSMC is a stock that I'd feel comfortable holding for the long haul.
