Is TSMC the Only AI Stock You Need?

The earnings reporting period has started anew, with Taiwan Semiconductor Manufacturing Company (TSMC) – often referred to simply as TSMC – being one of the major companies to present their financial results thus far.

TSMC, the world’s leading semiconductor manufacturer, is known for its innovative approach in the industry by introducing the foundry model. Unlike many other semiconductor companies, TSMC does not engage in chip design. Instead, it functions as a third-party foundry, producing chips for companies such as Apple, Nvidia, and Advanced Micro Devices, among others.

In that role, TSMC stands as an industry pioneer, managing over half of global third-party chip manufacturing and approximately 90% of advanced chip production. Already thriving in the AI era, TSMC once more showcased its advantage in the second-quarter financial results.

In the second quarter, our business experienced a significant boost due to ongoing strong demand for Artificial Intelligence (AI) and High Performance Computing (HPC), as reported revenue increased by 38.6% to reach an impressive $30.1 billion, stated CFO Wendell Huang.

TSMC’s profits grew significantly as their gross margin climbed by 53.2% to reach 58.6%, a sign that they are benefiting from the surge in artificial intelligence (AI) technology that has driven stocks like Nvidia to record highs. This increase in gross margin appears to be a result of TSMC’s ability to command higher prices and meet growing demand, as well as the intricate nature of AI chips.

Approximately three-fourths of the total wafer revenue comes from advanced chips with a size of 7 nanometers or smaller. Breaking it down, about one-third (36%) comes from 5-nanometer chips, a quarter (24%) from 3-nanometer chips, and just over one-seventh (14%) from 7-nanometer chips. Furthermore, high-performance computing chips account for around 60% of TSMC’s overall revenue, indicating that artificial intelligence is playing a significant role in the company’s growth.

Indirect costs for TSMC are generally low, and this is indicated by its operating margin of 49.6% at the end of the quarter, demonstrating one of its competitive edges. In terms of profit per share, it reported $2.47 earnings per American Depositary Receipt (ADR). The stock experienced a 3.4% rise during the previous Thursday’s trading session due to this financial report.

Can TSMC keep climbing?

Using a more conversational tone, here’s how you could rephrase the original text:

TSMC shares have risen by 23% so far this year, and they’ve consistently increased since ChatGPT was launched, with only a brief dip due to the tariff sell-off. However, some investors have been hesitant about investing in the company because it’s based in Taiwan, which could potentially be a target for China’s invasion. But this risk seems relatively small.

For the company itself, its competitive edge appears stronger than ever, given its substantial market dominance within its industry. Notably, key competitors like Samsung and Intel have experienced setbacks recently, while this business seems to maintain a significant technological advantage.

TSMC remains reasonably valued at a price-to-earnings ratio of 29, similar to the broader S&P 500 market. However, as with other stocks in the sector, TSMC faces potential risks from the semiconductor cycle, and growth may decelerate, particularly as the AI market matures. Yet, its valuation aligns with the average, but TSMC is growing at a faster pace and appears to have a long-term growth trajectory ahead.

Is this the only AI stock you need?

While TSMC might not experience the phenomenal expansion seen in companies such as Nvidia, it offers a prime opportunity for investors seeking diverse participation in the Artificial Intelligence (AI) revolution. Its substantial competitive advantage, or “economic moat,” combined with its reasonably priced stock, makes it an appealing investment choice.

While it’s true that there are other notable and thriving AI stocks in the market, if you’re just starting out with investing or are new to the AI sector, TSMC could serve as an excellent initial pick. Despite its recent growth spurt, this stock still holds significant potential for further gains, especially considering the continued expansion of AI technology. If the AI industry continues to prosper, TSMC is poised to reap substantial benefits.

2025-07-22 17:13

Can TSMC keep climbing?

Is this the only AI stock you need?

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