TSMC (TSM +6.30%), the world's largest and most advanced contract chipmaker, might not initially seem like a high-growth artificial intelligence (AI) stock. Yet over the past five years, its shares have rallied by more than 170% as AI chipmakers lined up to use its plants. Let's see why it could still be one of the best AI stocks hiding in plain sight for 2026 and beyond.
Why is TSMC a top AI stock?
TSMC, based in Taiwan and operating plants in other countries, manufactures the world's smallest, densest, and most power-efficient chips. Most of the world's "fabless" chipmakers -- including Nvidia (NVDA +5.93%), AMD (AMD +18.37%), Broadcom (AVGO 0.52%), and Apple -- rely on TSMC to produce their most advanced chips.
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In 2025, TSMC's revenue rose 36% in USD terms. Most of that growth was driven by its production of high-performance computing (HPC) chips -- which include Nvidia and AMD's AI-oriented data center GPUs. Its HPC revenue surged 48% during the year, accounting for 58% of its top line. Nearly all of its other markets grew by the double digits. It generated 60% of its revenue from its densest 3nm and 5nm processes.
TSMC's gross and operating margins also expanded for the whole year, indicating it has ample pricing power as demand for new AI chips outstrips its capacity, and its EPS surged 46%. For 2026, it expects its revenue to rise nearly 30% in USD terms as the AI boom continues.
From 2024 to 2029, TSMC expects its CAGR to "approach 25%" in USD terms. Based on that rosy outlook, its stock still looks reasonably valued at 27 times forward earnings. It also expects its gross margin -- which came in at 60% in 2025 -- to stay above 56% through that cycle.
What are its near-term catalysts?
Many tech giants, including Microsoft (MSFT +0.66%) and Meta (META +1.33%), plan to significantly ramp up their AI infrastructure spending in 2026 and beyond. That means they'll buy more AI chips from companies like Nvidia, AMD, and Broadcom -- all of which need TSMC to manufacture their finished chips. TSMC also aims to maintain its process lead over other foundries by ramping up production of its smallest 2nm chips in the second half of 2026.
Moreover, TSMC will continue to expand its overseas plants -- especially in Japan, the U.S., and Europe -- to address the looming risks of a military conflict between Taiwan and China. All of these near-term catalysts should make TSMC a top AI stock to buy this year.
