Taiwan Semiconductor’s Role in AI Chip Production
Taiwan Semiconductor (TSM) is the manufacturer for all of Nvidia’s AI chips. This positions them well in an industry that’s diversifying. For instance, Google’s recent deal with Anthropic for one million TPU chips indicates a shift, showing that firms are moving away from Nvidia’s products faster than anticipated.
Nvidia’s CEO, Jensen Huang, announced a staggering $1 trillion forecast for chip demand at the GTC 2026 conference in March. He projected that cumulative demand for Nvidia’s Blackwell and Vera Rubin architectures will exceed a trillion dollars by the end of 2027, a significant increase from his earlier prediction of $500 billion by 2026. Interestingly, rather than celebrating this news, analysts are investigating it closely, and Nvidia’s stock hasn’t really changed much as a result.
While many might assume that Nvidia is the primary beneficiary of this growth, I believe the true winners are actually Taiwan Semiconductor. Every Nvidia chip sold has to be produced first, and TSM is at the heart of this supply chain. They wield substantial influence over the AI sector.
My perspective on TSM’s advantage over Nvidia stems from a belief that competition is intensifying more than Huang anticipates. Although Nvidia is expected to maintain a lead in the AI GPU market through 2027, the landscape is changing. Already, hyperscalers and AI companies appear to be less reliant on Nvidia, even opting for alternative hardware that might not be as advanced.
For example, Anthropic’s partnership with Alphabet involves acquiring a substantial number of TPU chips. This trend suggests that other companies in the AI field may also pursue similar agreements in the coming years.
Now, who’s producing these TPU chips? It’s TSMC. Investing in TSM stock essentially offers a broad exposure to the AI chip market. Regardless of which company prevails in this race, TSM is likely to reap the benefits.
Interestingly, TSM stock hasn’t performed as strongly as fabless semiconductor companies like Nvidia and AMD until recently. However, over the last couple of months, TSM shares have been on the rise, while stocks like NVDA have shown little movement. In fact, TSM has climbed 25% in six months, whereas NVDA has remained flat. AMD saw a bump of 35% but has started dipping since its peak.
Currently, TSM is the only major chip stock showing significant gains while others in the AI industry struggle. Some might argue against buying TSM right now because its stock is rising, suggesting that Nvidia’s stagnant price could allow its finances to catch up. Given Nvidia’s rapid growth, its forward P/E ratio of 21 times is relatively low for a company in such a growth period.
However, TSM is not far behind with a forward P/E ratio under 25 times. This actually puts it below the median for semiconductor stocks, which are trading at around 28 times forward earnings.
When considering growth, TSM appears more expensive. Its yearly sales are anticipated to increase by about 25.6%, while other AI stocks might see growth rates of 40-50%. But the trade-offs for short-term gains are balanced by the fact that TSM is almost certain to thrive as long as the AI narrative continues positively.
In contrast, Nvidia might find its competitive edge slipping within just a few years. Overall, I think that right now, TSM stock is a sound investment choice.
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