If Given the Choice to Purchase Only One Chip Company's Stock, This Would Be My Selection
Investing in semiconductors has become a staple in many investors' portfolios, whether they fully grasp the concept or not. Chips are an integral part of virtually every consumer device, and leading the pack is Taiwan Semiconductor Manufacturing Company (TSMC), often referred to as simply "TSMC."
TSMC has established itself as the premier chipmaker, thanks to its partnerships with tech juggernauts such as Apple and Nvidia. Its dedication to continuous improvement reinforces our belief in this company. If you can only pick one chip stock, TSMC would be it. Fortunately, the stock is currently affordable for those who haven't hopped on the bandwagon yet.
Leading the Way in Chip Technology
Thanks to its position as a contract manufacturer, TSMC doesn't need to market its chips. Instead, tech giants like Apple and Nvidia approach TSMC to have their custom-designed chips produced. This competitive landscape allows TSMC to thrive, with its main competitors limited to other foundry businesses compared to direct chip manufacturers.
TSMC's current technology reigns supreme, with the ability to produce the world's most advanced 3nm chips. Yet, it doesn't rest on its laurels. The company is already working on 2nm and A16 processes, which promise more powerful chips that also consume less energy than their 3nm predecessors. The expected 20% to 30% power reduction with the 2nm chip, and a further 15% to 20% reduction with the A16, make these next-gen chips highly attractive. Production of 2nm chips starts later this year, with the A16 following suit in the second half of 2026.
Risks and Rewards
Though TSMC's market position is advantageous, it also presents challenges. The geopolitical tensions between China and Taiwan have sparked concerns about the company's future. While the complex China-Taiwan relationship and potential for Chinese takeover could impact Taiwan Semiconductor, the company has taken steps to mitigate these concerns.
TSMC has expanded its production facilities to the U.S. and Japan and plans to construct another one in Germany. The Arizona facility currently produces 4nm chips, while TSMC is already planning to build additional U.S. facilities for 3nm, 2nm, and A16 chips. This move is expected to quell concerns over potential tariffs and support the U.S. goal of increasing domestic chip production.
Investing in TSMC comes with risks, but the potential rewards are substantial. With TSMC projected to grow its revenue by 28% in 2025 and 19% in 2026, the stock's current price seems reasonable. Trading at 22.4 times forward earnings, TSMC stock is on par with the S&P 500. With TSMC's market position and growth prospects, it's safe to say that it's hardly an average stock. As a result, purchasing TSMC shares should be seriously considered for long-term investors looking for a solid addition to their portfolio.
- Financially speaking, TSMC's stock is currently affordable for investors who haven't yet invested, offering a potential return given its projected revenue growth of 28% in 2025 and 19% in 2026.
- In the realm of chipmaking, continuous improvement is key, and TSMC demonstrates this by already working on 2nm and A16 processes, promising more powerful, energy-efficient chips.
- Investing in semiconductors, particularly TSMC, can be an attractive option for those seeking shares in a company that has established itself as the premier chipmaker by partnering with tech giants and maintaining a dedication to innovation.
- The thesis for investing in TSMC is strengthened by its continuous efforts to diversify its production facilities beyond Taiwan, such as its planned construction of a facility in Germany, aiming to mitigate geopolitical risks and support domestic chip production.
