If AI Spending Really Hits $4 Trillion, This Stock Could Ride the Wave

NVDA -1.81% TSM +0.53%

Key Points

• Taiwan Semiconductor manufactures chips for all the major AI accelerator designers.

• The stock is fairly cheap for the AI sector.

• 10 stocks we like better than Taiwan Semiconductor Manufacturing ›

There are a wide variety of estimates out there about how much money will be spent on the AI infrastructure buildout over the next few years, and one of the boldest projections is from Nvidia.

During its third-quarter conference call, the company reaffirmed its projection that annual global spending on data centers will reach $3 trillion to $4 trillion by 2030. Naturally, many investors are wondering if such a bullish projection is really attainable.

Yet the chipmaker is in a great position to predict where the computing market is heading because it's likely receiving orders for delivery beyond 2026 right now. CEO Jensen Huang said in the earnings release that his company was sold out of its data center graphics processing units (GPUs), so AI hyperscalers are likely ordering several years in advance. If the data center market is truly on course to reach $4 trillion, there's one stock that will be a must-own: Taiwan Semiconductor Manufacturing (NYSE: TSM).

The AI chip race keeps heating up

Nvidia continues to lead the AI computing hardware race with its best-in-class GPUs right now, but it isn't without competition. AMD and Broadcom also have compelling options for providing data centers with parallel processing power, and their chips could sap some of Nvidia's market share over the next few years, particularly due to their combinations of performance and value.

It's impossible to predict what fractions of the AI accelerator chip market each of them will wind up with, but they all get their chips manufactured primarily by one source: Taiwan Semiconductor -- TSMC for short.

TSMC is one of the few chip foundry operators in the world capable of producing chips using the most advanced process nodes, and its products have far surpassed those from competitors like Samsung and Intel. It has developed high-yield technologies to fabricate those cutting-edge chip designs, and most of the big tech companies source chips from TSMC. Indeed, it has a majority share of the third-party chip foundry market.

There are some valid concerns about Taiwan's proximity to mainland China, which has made no secret of its desire to take control of the island, but the company has taken steps to expand its foundry globally. It is in the midst of a multiyear $165 billion buildout of its manufacturing capacity in the U.S.

This is already paying off: Nvidia recently announced that all of its Blackwell chips are being made at TSMC's Arizona factory. And domestic demand for chips is off the charts.

TSMC already has leading-edge 3-nanometer (nm) chip technology, and it's launching its next-generation 2nm chips, which offer a huge leap forward in energy efficiency. They consume 25% to 30% less electricity when configured to run at the same speed as 3nm chips.

With energy consumption becoming a huge focus for AI data center operators, that will be a significant edge, and should allow TSMC to charge a greater premium for its foundry services, further boosting revenue. The investment thesis behind the company is rock solid. Furthermore, it's one of the cheapest stocks in the AI sector.

Taiwan Semiconductor's stock is reasonably priced

Though there are arguments to be made that many stocks in the AI realm have become overvalued, TSMC doesn't fit that bill. Although its valuation has risen throughout 2025, 22 times next year's earnings isn't a bad price to pay for a company that's growing as quickly as it is.

For reference, consumer staple companies like Coca-Cola trade at nearly the same earnings ratios as TSMC does, with far slower growth.

I'm a huge fan of the foundry's business model and stock, and I believe it will be one of the best performers over the next five years, likely placing second only behind whichever company can capture the most market share in the AI chip design segment. I'm not sure if that one will be Nvidia, Broadcom, or AMD, but by investing in TSMC, you'll be well positioned to benefit.

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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, 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.

If AI Spending Really Hits $4 Trillion, This Stock Could Ride the Wave was originally published by The Motley Fool