Key Points
Taiwan Semiconductor Manufacturing (NYSE: TSM), popularly known as TSMC, is the world’s largest semiconductor foundry, specializing in the mass production of chips and circuits designed by fabless companies.
TSMC’s factories churn out chips for the most important tech companies in the world, including Apple, Sony, Nvidia, Advanced Micro Devices, Qualcomm, and many others. In fact, TSMC notes that it manufactured more than 12,000 products for 534 customers last year. The company’s importance can be further understood by the fact that it controls an impressive 73% of the global pure-play foundry market, according to Counterpoint Research.
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So, TSMC’s results and outlook can be considered a barometer for the semiconductor industry’s health, which has been benefiting big time from the rapid adoption of artificial intelligence (AI). That’s why TSMC CEO C.C. Wei’s recent comments bode well for AI stock investors.
Image source: TSMC.
TSMC CEO’s comments indicate that the AI supercycle will be long-lasting
Bloomberg recently reported that TSMC expects global semiconductor supply to remain short of demand for several years, primarily due to AI. Wei said, “It will be a long time before we can meet customer demand,” even though the company is bringing new fabs online.
It is worth noting that TSMC is poised to spend a whopping $265 billion on building 10 semiconductor fabrication plants in the U.S. However, bringing those fabs online will take time. Given that the four major hyperscalers in the U.S. are on track to have $725 billion in capital spending this year to bolster their AI infrastructure, it is easy to see why the TSMC CEO expects supply to fall short of demand over the long run.
Management consulting giant McKinsey estimates that the global semiconductor market could be worth $1.6 trillion in 2030, up from $775 billion in 2024. However, that’s McKinsey’s base-case scenario, with the firm anticipating the semiconductor industry to generate $1.8 trillion at the top end in 2030.
TSMC, therefore, seems on track to deliver years of outstanding growth, as the AI supercycle isn’t going to go away anytime soon. A supercycle is a persistent period of strong demand for products and services that exceeds supply. This sets the stage for a favorable pricing environment for suppliers. So, Wei’s comments suggest that strong demand for AI chips will remain a tailwind for the semiconductor sector, enabling companies to deliver solid long-term growth.
Now seems like a great time to buy AI chip stocks
There are several options investors can consider to capitalize on the AI supercycle. The good news is that there are many semiconductor stocks available at attractive valuations right now.
Data by YCharts
It is worth noting that these companies have been clocking phenomenal earnings growth. Also, they are attractively valued, considering that the tech-focused Nasdaq-100 index has a forward earnings multiple of 27.3, which is why they are no-brainer buys right now.
Should you buy stock in Taiwan Semiconductor Manufacturing right now?
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Micron Technology, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
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