Nvidia has been one of the biggest darlings of the artificial intelligence (AI) revolution, but another chip stock could be on the verge of breakthrough.
Over the past three years, one piece of hardware has continually been credited for the rise of generative artificial intelligence (AI) applications: the semiconductor. Naturally, investors were looking for growth in companies that design AI chips and the networking equipment that powers them inside data centers.
In this context, names like Nvidia, Advanced microdevicesAnd Broadcom have become synonymous with the AI revolution. In recent months, however, investors have started looking beyond the usual suspects in the chip space.
Perhaps the biggest reason for this is hyperscalers’ increasing investments in AI infrastructure. As big tech invests hundreds of billions of dollars in data center upgrades, investors are starting to wonder which companies actually benefit most from accelerated infrastructure buildout.
GOOGL Capital Expenditure (TTM) data by Y Charts
In my eyes, Semiconductor manufacturing in Taiwan (TSM +0.51%) might be the best choice. Let’s explore Taiwan Semi’s critical role in the AI landscape and assess why the stock could be poised for an Nvidia-like breakthrough in 2026.
Why is Taiwan Semiconductor important for AI?
Taiwan Semiconductor (or TMSC) specializes in foundry services. The company’s manufacturing facilities serve as the manufacturing product for sophisticated chip designs from Nvidia, AMD, Qualcomm, Appleand many others. With approximately 68% market share, TSMC is the world’s largest chip foundry by revenue.
What makes Taiwan Semi so unique is that its business is expected to benefit from the broader secular trend of growing chip demand. In other words, the company’s diverse customer base makes it less exposed or vulnerable to a particular chip design. Given this dynamic, TSMC acts more as a selection opportunity in the semiconductor industry.
Image source: Semiconductor manufacturing in Taiwan.
Why 2026 could be a landmark year for TSMC
Analysts at Goldman Sachs recently reported that AI investments among hyperscalers could reach nearly $500 billion next year. While that number certainly captures the imagination, I/O Fund’s Beth Kindig not only sees investment accelerating next year, but she also calls for the infrastructure chapter of the AI story to be a multi-year, multi-billion dollar opportunity.
I’m personally in Kindig’s camp on this point. In recent months, several major transactions have been announced:
Semiconductor manufacturing in Taiwan
Today’s change
(0.51%) $1.49
Current price
$294.42
Key Data Points
Market capitalization
$1,528 billion
Daily scope
$293.25 -$300.77
52 week range
$134.25 -$311.37
Volume
437 KB
Average flight
13M
Gross margin
57.75%
Dividend yield
0.98%
The common thread in these deals is that demand for GPUs remains strong. Going further, many of these partnerships are expected to last for several years, suggesting that chip purchasing will remain a critical need for AI developers for a long time to come.
This is music to TSMC’s ears. Even if Nvidia, AMD and others see their names make headlines, it is highly likely that a large portion of the chips purchased in these deals will be produced by Taiwan Semi.
I think 2026 will mark the beginning of the AI infrastructure era. As more deals are revealed, investors should begin to better understand Taiwan Semi’s role in the AI landscape and digest the scale of demand the company is witnessing. As a result, the company’s revenues and profits could experience an exponential acceleration.
Is Taiwan Semi Stock a Buy?
Taiwan Semi’s valuation multiples have increased dramatically over the past year. That said, I think these dynamics have less to do with underlying company performance and more to do with perception of the company.
TSM PE ratio (forward) data by Y Charts
Investors are concerned about TSMC’s potential vulnerability to broader geopolitical tensions between China and Taiwan. However, Taiwan Semi appears to have alleviated those concerns – largely thanks to the company’s expansion efforts in Arizona, Germany and Japan.
Although the stock is now at a premium to its April lows, I think Taiwan Semi shares are still worth a look. The AI infrastructure opportunity is still in its early stages, and the current pace of deals suggests that TSMC is going to have its hands full for a while.
I think Taiwan Semi’s next breakthrough could result in prolonged share price gains, as investors gain a greater appreciation of the company’s influence in the broader AI market and the reasons for its booming business results.
For these reasons, I think TSMC stock could follow a similar trajectory to Nvidia, making it a compelling long-term buy at the moment.
Adam Spatacco holds positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool holds positions and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Goldman Sachs Group, Meta Platforms, Microsoft, Nvidia, Oracle, Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
