Nvidia (NVDA 1.21%) has played a pioneering role in artificial intelligence (AI) technology for more than three years now, which is not surprising as its chips have helped train popular large language models (LLMs) and move those models into production.
However, Nvidia has been losing steam of late. The semiconductor stock is up just 3% in the past six months, driven by multiple concerns such as its valuation, the sustainability of high AI data center spending, and circular financing deals. But there's another semiconductor bellwether that has outperformed Nvidia during this period -- Taiwan Semiconductor Manufacturing (TSM 4.36%).
Let's see why TSMC stock has jumped over 43% in the past six months and is capable of outperforming Nvidia in 2026 as well.
Image source: TSMC.
TSMC is the driving force behind the AI chip revolution
There is no denying that Nvidia's chip systems have been the building blocks of the global AI revolution. However, it is worth noting that TSMC has played a central role in helping Nvidia dominate the AI chip market.
NYSE: TSM
Key Data Points
That's because Nvidia is a fabless chipmaker, which means that it only designs and sells chips. It needs to go to a foundry -- TSMC, in this case, to get those chips manufactured. TSMC's advanced chip nodes have allowed Nvidia to turn its chip designs into reality. More importantly, TSMC doesn't manufacture AI chips for just Nvidia.
Its foundries are utilized by Broadcom, AMD, Qualcomm, Apple, and other companies to make chips that power various AI applications, such as data centers, smartphones, and personal computers (PCs). So, while Nvidia is reliant on TSMC to make cutting-edge chips, TSMC is the go-to manufacturer for multiple chip designers.
This ensures that TSMC is right in the middle of the AI chip boom. Not surprisingly, TSMC is anticipating an increase of almost 30% in revenue in 2026 in U.S. dollar terms. However, the company could easily do better than that thanks to potentially higher prices for its most advanced chip nodes, as well as an increase in its production capacity this year.
Stronger-than-anticipated growth should help TSMC outperform Nvidia
Nvidia's valuation may continue to weigh on the stock in 2026. After all, it is trading at 24 times sales, a premium to TSMC's sales multiple of 15. Of course, Nvidia's valuation can be justified by the stronger growth that it can deliver in comparison to TSMC this year, with analysts expecting a 52% jump in revenue and a 63% increase in earnings in fiscal 2027 (which has just begun), but TSMC looks like the better value play that investors are more likely to be interested in.
Assuming TSMC's revenue indeed increases by 30% in 2026 to $159 billion (from $122.4 billion last year), and it continues to trade at 15 times sales after a year, its market cap could hit $2.4 trillion. That suggests potential upside of 33% from current levels, though don't be surprised to see TSMC stock doing better than that and continuing to outperform Nvidia stock owing to potential price rises and the new capacity that it is bringing online.
