Taiwan Semiconductor Manufacturing (TSM +2.45%) stock has been a strong performer so far in 2026, rising by around 35% year to date compared to a 14% gain for the Nasdaq Composite. However, I think there's plenty more upside in store: In my view, before 2026 is over, Taiwan Semiconductor's stock could surge by 22% from here.
That would be a big rise in a short time, but I think once investors digest what's expected to happen in 2027, the stock will start its upward trajectory. That makes now an excellent time to buy, as the stock is also down by more than 10% from its all-time high.
Image source: Taiwan Semiconductor Manufacturing.
2027 will be a big year for Taiwan Semiconductor
Taiwan Semiconductor is the world's leading logic chip foundry and is trusted by nearly every big tech firm to make their chips. From Apple (AAPL -1.93%) to Nvidia (NVDA +0.66%) to AMD (AMD +3.39%) and many other vital clients, Taiwan Semiconductor holds a massive market share. According to TrendForce data compiled by The Motley Fool, at the end of 2025, Taiwan Semiconductor held a more than 70% share of the third-party foundry market by revenue. That positions it well to take advantage of what's coming next year.
NYSE: TSM
Key Data Points
During Nvidia's Q2 earnings call, management noted that it believes the big five AI hyperscalers will spend around $1.3 trillion on data center capital expenditures next year. There are several other big spenders that are not included in that total, so true capex spending could be much higher than that. For reference, that same group of companies plans to spend nearly $800 billion in 2026.
So there's clearly huge growth in AI infrastructure going on, and Taiwan Semiconductor is well positioned to take advantage of it because it's producing a vast majority of the chips that go into the computing units that fill those data centers. However, none of this growth is currently accounted for in its stock price.
TSM PE Ratio (Forward) data by YCharts.
Towards the end of each year, Taiwan Semiconductor's forward price-to-earnings ratio tends to top out at about 30. To reach that level again at the end of 2026 would require the stock to rise by around 22% to a new all-time high. But I think that Taiwan Semiconductor's stock is primed to do that.
Even if it doesn't achieve that rapid gain, I still think TSMC's a great stock to buy now and hold on to throughout 2027, as the tailwinds in the AI industry will boost its business to new heights.
