There are a handful of opportunities that arise in an investor’s career to make a defining investment. If you can jump in at the right time, you can make a boatload of money and increase the odds of being a successful investor over the long run and beating the market.
Although many investors think they may have missed the boat by not starting investing at the start of 2023 when the AI arms race was beginning, the reality is that there’s still a massive amount of spending to come in this space.
And while Nvidia has made investors a ton of money since the start of the AI arms race, I think there is a better investment option in this space that will set investors up for success regardless of who the ultimate winner is: Taiwan Semiconductor(NYSE: TSM).
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Although Nvidia has delivered shareholders excellent returns and has an impressive market share in the AI computing market, it’s starting to see rising competition from AMD and Broadcom. Both of these companies are stocks to watch over the next five years, but there’s no guarantee that they will outperform Nvidia. Instead of picking which one of these three will be the next big success story in AI computing hardware, you could invest in the company that’s supplying them with chips for their devices.
Taiwan Semiconductor, also known as TSMC, is the chip supplier for this trio, and also has Apple as a client. TSMC is the world’s largest semiconductor manufacturer by far, and it has earned this title through years of continuous innovation and excellent production standards. While there are two primary competitors, Intel and Samsung, neither of them has the client base that TSMC has.
As long as the artificial intelligence arms race is ongoing, TSMC will continue to be an excellent stock pick. In the third quarter, 57% of revenue came from high-powered computing applications, which center around AI and 5G technology. However, AI spending isn’t expected to slow anytime soon.
Many projections, including those from Nvidia, call for data center capital expenditures to reach the trillion-dollar mark in the near future. Nvidia believes it will get to $3 trillion to $4 trillion by 2030, compared to $600 billion in 2025. That’s 5x growth in just five years, which means that the AI investment trend is just getting started.
So, just because you missed the initial AI investing wave doesn’t mean you have to miss out on the rest of this once-in-a-decade investment opportunity. TSMC still has plenty of upside, and its new technology could be what unlocks its next leg of growth.
One of the biggest concerns with all of the AI data center buildouts is rising electricity prices. Consumers don’t want to subsidize the AI industry by paying skyrocketing electricity bills, and the AI hyperscalers will either need to start building their own energy sources or be more efficient.
TSMC is helping its clients on the efficiency side, as its new 2nm (nanometer) chip node will drive massive power consumption improvement gains. When configured at the same processing speed as a 3nm chip, 2nm chips consume 25% to 30% less power. These chips are entering volume production during Q4 and could provide another revenue boost for TSMC. Beyond 2nm chips, the company has other technologies that will further improve the chip power consumption problem.
With a massive data center buildout still ongoing and TSMC actively solving one of the biggest issues, I think it makes for the top stock to buy in the AI arms race, as it allows you to invest in the rising tide of the AI buildout, rather than just backing a single player. I think investors can still pick up shares of TSMC now and have great success, as the AI arms race is far from over.
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Keithen Drury has positions in Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: short November 2025 $21 puts on Intel. The Motley Fool has a disclosure policy.
A Once-in-a-Decade Investment Opportunity: Meet My Favorite Artificial Intelligence (AI) Semiconductor Stock (Hint: Not Nvidia) was originally published by The Motley Fool
