Taiwan Semiconductor Manufacturing (TSM 4.25%) stock has gained 61% over the past year, crushing the S&P 500's 14% rise. But it still has a huge opportunity, and even if you've missed out on the stock until now, you can still benefit from buying it today. Here are three reasons why you might want shares of this dominant semiconductor foundry in your portfolio.
Image source: Taiwan Semiconductor.
1. It's a key player in AI
While artificial intelligence (AI) stocks have captivated the markets for a few years already, AI is still in its infancy. The large hyperscalers are all planning to invest even more money in developing their platforms this year than last year, when it was already several hundred billion dollars.
Taiwan Semiconductor partners with nearly all of the major players in AI development by fabricating the chips they design. Companies like Nvidia and Apple are its biggest clients. Before AI, it worked with other kinds of technology, like smartphones and gaming products, which are still a large part of its business. Today, the high-performance computing segment, which includes AI, is responsible for 58% of its revenue. Smartphones accounted for 29% of the total in 2025.
One thing I love about Taiwan Semiconductor's business is its timelessness. It serves any kind of technology, so it's not locked into changing fads that could disappear when the market moves on to the next one. Even better, it actually benefits from every new trend.
2. It has a highly profitable business
AI is heating up and driving growth, but as a well-established business with a strong model, the company is efficient and profitable, and it keeps getting better. In the 2025 fourth quarter, gross margin was 62.3%, up from 59% the previous year, and operating margin was 54%, up from 49% the prior year.
Management noted that capital expenditures are going to increase this year as the company builds out to meet soaring demand, but it also said that these deep investment periods have always been followed by high growth. It's investing in its future.
NYSE: TSM
Key Data Points
3. It has an attractive price
Taiwan Semiconductor's revenue increased 26% year over year in the fourth quarter, and earnings per share (EPS) were up 35%. That's robust growth, and signs are pointing to that continuing.
However, Taiwan Semiconductor stock trades at only 18 times forward one-year earnings. That's an attractive entry price considering the company's robust profitability and high growth prospects.
