Prediction: Taiwan Semiconductor Manufacturing Stock Is the Safest AI Chip Bet

Core Viewpoint - Taiwan Semiconductor Manufacturing Company (TSMC) is a crucial player in the AI chip manufacturing space, serving as a reliable partner for AI chipmakers despite not designing chips itself [1][7]. Group 1: TSMC's Market Position - TSMC is recognized as the world's most advanced semiconductor foundry, with major clients including Nvidia, AMD, Broadcom, and Apple, giving it unmatched scale and technological leadership [2]. - The company has a significant market share lead in the advanced node market, outperforming competitors like Intel and Samsung [2]. Group 2: Revenue and Growth - In Q1, TSMC's revenue increased by 35% to $25.5 billion, driven by high-performance computing (HPC) growth, and preliminary Q2 revenue is estimated to have risen by 39% to $31.9 billion [4]. - Chips manufactured on 7nm and smaller nodes accounted for 73% of TSMC's revenue in Q1, up from 65% the previous year, with 3nm nodes contributing 22% [3]. Group 3: Pricing Power and Margins - TSMC's strong pricing power is evident as it raises prices to counteract margin dilution from new fabs, with gross margin rising by 190 basis points to 58.8% in Q1 [4][5]. - The company plans to increase AI chip prices, with Arizona-made chips potentially commanding a 30% premium [5]. Group 4: Future Growth Prospects - TSMC anticipates AI-related revenue to grow at a mid-40% compounded average growth rate (CAGR) over the next five years starting in 2024 [8]. - The company is also positioned to benefit from the growth of autonomous driving and robotaxis, which will require advanced chips [9]. Group 5: Investment Appeal - TSMC is viewed as a safe investment in the AI semiconductor space, as it provides manufacturing services to all major players without needing to bet on a single chipmaker [11]. - The stock is attractively valued, trading at a forward P/E ratio of 24 based on 2025 estimates and a PEG ratio of less than 0.7, indicating it is undervalued [12].