Understanding what makes Taiwan Semiconductor tick helps clarify why this firm is dominating AI processor manufacturing.
Taiwan Semiconductor Manufacturing Firm (TSM 1.50%), also called TSMC, is likely one of the premier producers of superior processors, lots of that are used for synthetic intelligence. The corporate’s sturdy place on this house and its development over the previous few years have resulted in its inventory worth hovering practically 200% over the previous three years.
Current analysis from The Motley Idiot sheds some mild on how TSMC’s manufacturing expertise is a step forward, the way it makes the vast majority of its income, and the place most of its prospects are situated. Importantly, all of those components work collectively to set TSMC other than the competitors and make its inventory a wise one to personal for years to return.
1. The corporate is a pacesetter in superior chip manufacturing
TSMC manufactures a number of the world’s most superior processors, and the breakdown of the corporate’s income exhibits simply how a lot comes from its completely different manufacturing capabilities. Chip firms use the time period chip node to explain what number of transistors will match onto a semiconductor, with the unit of chip measurement being nanometers (nm). Usually talking, the smaller, the extra superior the processor.
Here is a snapshot of Taiwan Semiconductor’s prime 5 income turbines, by chip measurement:
Quarter
3nm
5nm
7nm
16/20nm
28nm
Q2 2025
24%
36%
14%
7%
7%
Knowledge supply: Taiwan Semiconductor.
This income composition is essential to focus on as a result of it exhibits {that a} whopping 60% of the corporate’s semiconductor gross sales are from the smallest and most superior processors (3nm and 5nm) in the marketplace.
No different firm compares to TSMC’s manufacturing prowess, and it is more likely to proceed outpacing the competitors. TSMC has already signal 15 offers with tech firms for 2nm semiconductor manufacturing, leaving rivals, together with Samsung, far behind.
2. Its superior processors are driving its development
Simply as essential because the expertise behind TSMC’s income is what applied sciences these processors energy. If we return 5 years, smartphones have been the driving income power for TSMC. Now, it is high-performance computing (assume AI knowledge facilities).
The corporate has dominated the manufacturing of superior processors so nicely, the truth is, that TSMC makes an estimated 90% of the world’s most superior processors.
Right here is the corporate’s income distribution over the previous 4 quarters:
Quarter
Excessive-Efficiency Computing
Smartphone
Web of Issues
Automotive
Digital Shopper Electronics
Others
Q2 2025
60%
27%
5%
5%
1%
2%
Q1 2025
59%
28%
5%
5%
1%
2%
This autumn 2024
53%
35%
5%
4%
1%
2%
Q3 2024
51%
34%
7%
5%
1%
2%
Knowledge supply: Taiwan Semiconductor.
TSMC’s making the vast majority of its income from high-performance computing is essential as a result of it exhibits that the corporate efficiently tailored with the occasions, transferring from its beforehand dominant smartphone phase to gross sales from chips to AI knowledge facilities.
Extra development may very well be on the way in which, too, contemplating that semiconductor chief Nvidia believes expertise firms may spend as much as $4 trillion on AI knowledge heart infrastructure over the following 5 years.
3. U.S. tech giants drive demand
Taiwan Semiconductor relies in, you guessed it, Taiwan, however the overwhelming majority of its gross sales come from promoting processors to North American firms. About 5 years in the past, North America accounted for simply over half of TSMC’s gross sales, however that is jumped to 75% at the moment. China and the Asia-Pacific area tie for second place with simply 9% every.
Why does this matter? A few of the most superior synthetic intelligence firms, together with Nvidia, OpenAI, Microsoft, Meta, and Alphabet, are primarily based in North America. Taiwan Semiconductor’s shift towards gross sales on this geographic space is a mirrored image of the corporate efficiently attracting the world’s main AI firms to have their chips made by TSMC.
Is Taiwan Semiconductor a purchase?
With TSMC making an estimated 90% of the world’s most superior processors, the corporate outpacing its manufacturing competitors, and synthetic intelligence firms poised to spend trillions of {dollars} to construct out and improve knowledge facilities, TSMC is nicely positioned to be an excellent AI inventory for years to return.
Simply take into account that the stellar positive factors TSMC inventory has skilled over the previous a number of years have been a results of the early AI increase, which implies future returns will not be fairly as spectacular.
Chris Neiger has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Alphabet, Intel, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends the next choices: lengthy January 2026 $395 calls on Microsoft, quick January 2026 $405 calls on Microsoft, and quick November 2025 $21 places on Intel. The Motley Idiot has a disclosure coverage.
