TSMC Makes the Chips for Both Nvidia and AMD. Here's What a $5,000 Investment Could Be Worth by 2030.
When you hear investors talk about AI, names like Nvidia(NASDAQ: NVDA) and AMD(NASDAQ: AMD) pop up all the time. While those are great stock picks, investors can also go a layer deeper and look at a stock like Taiwan Semiconductor(NYSE: TSM). Taiwan Semiconductor is a chip foundry, which means that it manufactures the chips that giants like Nvidia and AMD design.
Because it's selling its services to most of the competitors in the AI chip race, TSMC is set to keep profiting from the infrastructure build-out no matter which of them is gaining or losing ground. All TSMC cares about is whether companies are spending more and more on data centers each year. If they are, then TSMC will need to produce more chips to meet demand. Considering the language the market has heard from some of the AI hyperscalers and computing unit providers recently, I'd say it's a safe bet that 2027 will be another year for the record books.
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That bodes well for TSMC, and I think a $5,000 investment made now could be worth far more by 2030.
Taiwan Semiconductor's scale is unmatched
Taiwan Semiconductor is the giant in its industry. Nobody else comes close to the chip production capacity that it has, and it accounted for over 70% of global third-party foundry revenue during the second quarter. So, if Nvidia or AMD wanted to switch a large share of their business away from TSMC to another foundry, they likely couldn't. Only TSMC has the production capacity necessary to meet the insatiable demand for AI computing power.
However, neither of these two would likely dream of switching foundry partners. Leadership teams at both have many times discussed how valuable their companies' relationships with TSMC are. Since TSMC always has innovative chip fabrication technology combined with excellent manufacturing yields, it has become a strong partner to many companies.
For years, the only thing about TSMC that investors could find fault with was the proximity of most of its foundries to mainland China. The Chinese government has long made clear that it wants to take control over the island of Taiwan, and concerns persist that it will at some point attempt to do so. Such a military conflict would put TSMC's foundries and exports at risk, and that will remain an issue. However, TSMC is in the midst of investing $265 billion in U.S. chip production facilities, which will help geographically diversify its operations. That's a huge deal and helps solidify TSMC's future.
As for future growth, a while back, TSMC management forecast that its AI-related chip revenue would grow at a compound annual rate in the high 50% range through 2029. When asked on last month's earnings call if he could offer an update to that figure, CEO C.C. Wei said that the company doesn't have one, but that demand is robust, and TSMC will probably grow even faster than that.
I think that pretty much confirms that TSMC will stay on its current growth trajectory through 2030, providing investors with large gains.
Taiwan Semiconductor's business will drive stock results
Currently, TSMC trades at 26 times trailing earnings, which is lower than where it has traded for the majority of the past three years.
TSM P/E Ratio data by YCharts. P/E = price-to-earnings.
This means that today's stock price is attractive, and that future share price moves will be driven by business growth. Next year, the company expects about 38% revenue growth, on top of the 47% expected for 2026. For the remainder of the AI build-out, I think a companywide growth rate of 35% through 2030 isn't out of the question, especially considering the increased production capacity that is coming online in the U.S.
Should TSMC's stock grow at the same pace as its business, a 35% annualized growth rate from 2027 to 2030 would cause the stock to rise 232%. That would turn a $5,000 investment made today into a stake worth over $16,000 in 2030.
That's a great return in just a few years, and as long as the AI build-out stays strong through 2030 (and many projections indicate that it will), Taiwan Semiconductor will remain a great stock holding.
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Keithen Drury has positions in Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy .
TSMC Makes the Chips for Both Nvidia and AMD. Here's What a $5,000 Investment Could Be Worth by 2030. was originally published by The Motley Fool
