Taiwan Semiconductor Manufacturing (NYSE:TSM) is a chip stock many long-term investors have done well owning. With a diverse product set, which includes semiconductors vital for AI technology, smartphones, and microchip-based devices, Taiwan Semi is a leader in its field. The company’s overall market capitalization has surpassed the $1 trillion mark, as investors continue to pile into potential AI beneficiaries. 

Taiwan Semi remains the leading global chip foundry, manufacturing most chips for companies like Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD), without marketing its own products. However, the company’s cutting-edge 3nm technology enables efficient, powerful chips, with even smaller 2nm nodes set to launch in 2025 amid strong demand. It’s my view that continued growth in this overall sector could provide strong tailwinds for Taiwan Semi to continue to outperform, and potentially hit a $2 trillion valuation (doubling) in 2025.

Here’s the bull case behind what may lead to such a surge.

Key Points About This Article:

• Taiwan Semiconductor remains one of the top chip stocks in the world, and is currently valued at a market capitalization of more than $1 trillion.
• Here’s the bull case behind what would be the key drivers to take this stock on a big run and double over the course of the next year.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Strong AI Demand

Taiwan Semi has certainly been among the key AI beneficiaries in the market, with the company’s share price surging nearly 100% over the past year and 200% over the past two years. Thus, from a mathematical standpoint alone, I do think there’s a strong case to be made that a $2 trillion valuation is within reach for the Taiwan-based company.

Much of this growth has simply been tied to fundamental growth. Driven by surging demand for AI chips, Taiwan Semi’s core business has been running on overdrive, and that’s a dynamic I don’t expect to change anytime soon.

This growth has been seen in the company’s most recent Q3 resutls, in which Taiwan Semi reported 50% earnings growth, with upward revisions to future targets. With analysts now pricing in much higher earnings moving forward (due to AI but also stronger smartphone chip demand), this stock could be on its way for a much higher multiple. That’s because, compared to its peers, TSM stock is attractively valued, and doesn’t carry many of the headwinds other niche chipmakers are beholden to.

Furthermore, the company’s Arizona, Japan, and European facilities are going to be closely-watched by investors. These facilities are key for Taiwan Semi to meeting surging AI-driven demand, with the company leading in advanced semiconductor manufacturing for firms like Nvidia. High-performance computing (HPC), tied to AI and data center spending, grew 11% last quarter and now accounts for 51% of TSMC’s revenue. That number is up from 39% two years ago, and represents a trend I think can continue moving forward. With data center growth fueling demand, TSMC’s revenue and robust operating margins of 47.5% are expected to remain strong.

Growth Looks Robust

TSMC faced challenges in 2023 with weak smartphone and PC demand, leading to a 9% revenue drop to $69.3 billion and a 21% decline in adjusted earnings to $5.18 per share. However, this past year brought a turnaround, with May revenue surging 30% year-over-year, with most of this year’s increase seen over the past five months. If this growth trend can continue, again, there are strong fundamental factors at play that could simply warrant a $2 trillion on earnings and revenue growth acceleration.

We’ll have to see if Wall Street forecasts for a 16% rise in global semiconductor sales this year pans out. But I do think Taiwan Semi has what it takes to outpace industry growth, with the company holding a dominant 61% share in the third-party foundry market, far ahead of Samsung’s 11%. The company’s advanced 3nm, 5nm, and 7nm nodes power AI chips for data centers, smartphones, and PCs, and now account for 65% of revenue. That’s up from 51% in early 2023.

Experts believe advanced chip sales are expected to grow rapidly, with AI server GPU sales projected to rise 30% annually through 2031. As the leading foundry for AI-focused chipmakers like Nvidia, AMD, and Intel, Taiwan Semi is well-positioned to benefit from these longer-term trends. In other words, so long as the growth train continues chugging along, Taiwan Semi will be a company investors won’t want to miss out on here.

This Stock’s Rise May Be Far From Over

It’s’ worth noting that TSM stock is currently trading roughly 15% below its most recent high. Thus, a move toward a $2 trillion valuation would simply imply another 60% surge from its previous high, a move I think most investors could agree is certainly within reach if sentiment continues to remain as robust as it has been around companies with clear and decisive leverage toward the rise of artificial intelligence technology.

Thinking back to when Nvidia became a $1 trillion company, for example, and how quickly that chip maker soared past the $2 trillion and $3 trillion thresholds can certainly provide some insight into what the future may hold for Taiwan Semi.

Nothing is assured on this front, and there are certainly risks with investing in any chip maker, given where valuations are currently across the board. However, with TSM stock priced at a relatively attractive 21-times forward earnings, I do think there’s a strong fundamental case here for the chip maker to surge to a $2 trillion valuation over the next year.

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