There's been a bit more volatility in the stock market lately. As exciting as artificial intelligence (AI) is, there are burning questions surrounding topics such as colossal data center investments or which companies AI may disrupt over the coming years.
Some AI stocks have even begun to pull back amid the uncertainty, but Taiwan Semiconductor Manufacturing (TSM 4.96%), or TSMC for short, continues to shine, up 65% over the past year. I don't blame anyone for considering selling the stock at its high. After all, it's hard to go broke taking a profit.
But there's good reason to believe that TSMC stock still has more upside ahead. Here is why I predict that it will still see plenty of new highs by the end of 2026.
Image source: Taiwan Semiconductor Manufacturing.
Big tech is sending a strong message about AI
TSMC is the world's leading chip foundry, accounting for nearly three-quarters of global chip manufacturing revenue. It's the hidden player behind companies such as Nvidia, responsible for manufacturing cutting-edge AI chips and chips for virtually every technology application.
Naturally, TSMC depends on continued data center investments, as it produces most of the chips going into them. Admittedly, it's fair to wonder how sustainable some of this spending is, especially for companies such as OpenAI, which is still trying to grow revenue streams large enough to fund its commitments.
That said, big tech seems committed to AI at this point. Alphabet and Amazon are both ramping up AI spending for 2026, with plans to spend up to $185 billion and $200 billion, respectively. In all, researchers estimate that total global data center investments could approach $7 trillion by 2030. Being the market leader for chip production, much of that growth will funnel through TSMC.
NYSE: TSM
Key Data Points
TSMC is still too cheap for how important it will be to the AI movement
Simply put, TSMC is too dominant, and AI is moving too swiftly for competing foundries to have much opportunity to displace it as the manufacturer of these AI chips. That's why TSMC has actually increased its market share since the AI boom started a few years ago.
Analysts currently estimate that the company will grow earnings by an average of 25% annually over the next three to five years. Despite the stock price rising by 65% over the past year, shares still trade at just under 25 times this year's earnings estimates. It's not a stretch to call TSMC a bargain today, given its growth estimates and its firm stranglehold on AI chip production.
As long as Taiwan Semiconductor Manufacturing continues to deliver as expected, it seems likely the stock will see plenty of new highs over the next year.
