Concerns in the market are swirling about the long-term health of the artificial intelligence (AI) computing build-out. Investors are worried that an overbuild is occurring and that far too much money is being sunk into these technologies without any real payoff.
While that may be true, the AI hyperscalers aren't paying much attention. They're full speed ahead and spending major sums up front to grab as much market share as possible.
These long-term plans affect how suppliers like Taiwan Semiconductor Manufacturing (TSM +5.67%) (TSMC) size their business, and the company just dropped a $100 billion bombshell that showcases just how strong chip demand is.
During its second quarter conference call, TSMC announced an additional $100 billion in investment for its Arizona chip production facilities. That's a huge sum and would only occur if there was enough demand to warrant the 12-figure investment. I think this showcases that the AI build-out is alive and well, and investors should position their portfolios accordingly, including buying shares of TSMC.
Image source: Taiwan Semiconductor Manufacturing.
TSMC is one of the best investments in the industry
TSMC is absolutely dominant in chip fabrication. While there are other competitors, none can compare to the company's scale and technology. This gives it an advantage over competitors, which is why top AI chip designers chose to partner with TSMC. Throw in the catalyst of increasing production mostly through new facilities being built in the U.S., and the bull case becomes even stronger.
NYSE: TSM
Key Data Points
CEO C.C. Wei was asked on the conference call by an analyst how long he believes the AI build-out will last, and he stated that demand will remain very strong through 2029 to 2030. He also noted that demand is robust and is likely creating a new industry. C.C. Wei is likely in contact with AI hyperscalers and chip designers around the world, trying to gauge demand all the time, so if he says there is strong demand for many years, he's likely better informed than many investors and analysts.
As a result, I think investors need to get comfortable with the idea that we could see several years of strong AI spending, making TSMC a great stock to consider investing in. Fortunately for investors, TSMC's stock is on sale from recent highs and looks like a great investment, trading at a reasonable 23.4 times forward earnings.
TSM PE Ratio (Forward) data by YCharts
TSMC is at the heart of the AI build-out. If it continues to increase production capacity to meet demand, then investors can be assured that the AI build-out is far from over.
