TSMC handles fabrication for some of the largest tech companies.
Its CEO predicts monster growth over the next few years.
Yet, the stock trades at a discount to the market.
Finding decade-defining investments is every investor's dream. There have been multiple examples of stocks that have been top performers for a long time, giving early investors fantastic returns.
One stock that could be a top chip investment of the decade is Taiwan Semiconductor Manufacturing (NYSE: TSM). TSMC, as it's commonly known, is already at the top of the chip fabrication food chain, but its jaw-dropping growth projection over the next few years will make it one of the best stock picks of the coming decade.
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Taiwan Semiconductor is a critical part of big tech
Taiwan Semiconductor is in a dominant position in its industry due to its client base. None of the top big tech companies, like Nvidia or Apple, has the ability to produce its own chips. Instead, they design them in-house and then send those designs to TSMC to be manufactured. Because TSMC is only a fabrication facility and isn't trying to compete against any of its clients, its clients can rest assured that the competition isn't stealing their designs.
Furthermore, TSMC has the best production capabilities in the industry, and not using TSMC has proven to be a mistake. Taiwan Semiconductor has the ability to produce 3 nanometer (nm) chips right now, but is slated to launch 2 nm and 1.6 nm chips in the second half of 2025 and 2026, respectively. Nobody else currently has these capabilities, so this new technology will be critical to staying on top.
If you want the most advanced chip technology available, you must work with TSMC. This alone makes TSMC an intriguing stock.
However, some bears may point out that most of Taiwan Semi's manufacturing is in Taiwan, making it subject to China takeover fears and U.S. tariffs. While this is a valid argument, tariffs currently don't impact semiconductors, and a China takeover would cause significant geopolitical conflict that would likely destroy the broader market.
Taiwan Semi is also pouring $100 billion into new facilities in the U.S., including three manufacturing facilities, two packaging centers, and one research and development (R&D) center. While TSMC's management and the president of Taiwan have denied that President Donald Trump caused this expansion, the result is exactly what Trump wants.
While all of these things make for a strong investment pitch, why will Taiwan Semiconductor be the best chip investment of the decade?
The stock is dirt cheap for its strong growth projection
Because Taiwan Semiconductor is extremely well-connected in the chip industry, it has access to information that nobody else does. This is especially true because most clients place chip orders years in advance, which is why TSMC's existing U.S. chip production capacity has sold out demand through 2027.
When management speaks about strong growth, investors should listen. Over the next five years, Taiwan Semi's management sees artificial intelligence (AI)-related chips expanding at a 45% compound annual growth rate (CAGR) and overall revenue growth approaching a 20% CAGR. That's incredibly rapid growth, and if it comes true, it would indicate that Taiwan Semi's revenue would rise nearly 150% over the next five years.
Few companies can match that growth, and that guidance makes the stock a strong buy, as long as the stock price is reasonable. Following the marketwide sell-off, TSMC's stock is now incredibly cheap and has a ton of growth potential just from its valuation returning to a normal level.
Considering that the broader stock market, as measured by the S&P 500, trades for 22.1 times trailing earnings and 20.5 times forward earnings, Taiwan Semiconductor trades at a discount to the market despite projections that it will grow at a much faster-than-market pace.
This is a clear indication that the stock is a strong buy and will likely be a top investment over the next decade. Taiwan Semiconductor is one of my top stocks to buy right now, as its growth and cheap price tag should propel it to market-crushing status.
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Keithen Drury has positions in Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
